UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

(Mark One)

o		REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2009

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

For the transition period from            to         .

CHINA HYDROELECTRIC CORPORATION

Title of each class		Name of each exchange on which registered
American Depositary Shares, each representing three ordinary		New York Stock Exchange
shares, par value US$0.001 per share

     Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 15,541,666 ordinary shares.

     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes       þ No

     If this report is an annual or transaction report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. o Yes       þ No

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes       o No

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes       o No

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.

Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ

     Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

     U.S. GAAP þ International Financial Reporting Standards as issued by the International Accounting Standards
Board o       Other o

     If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to follow. o Item 17       o Item 18

     If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes       þ No

 

 

CHINA HYDROELECTRIC CORPORATION

TABLE OF CONTENTS

		Page
INTRODUCTION			3
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS			4
PART I.			5
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS			5
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE			5
ITEM 3. KEY INFORMATION			5
ITEM 4. INFORMATION ON THE COMPANY			31
ITEM 4A. UNRESOLVED STAFF COMMENTS			63
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS			63
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES			97
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS			109
ITEM 8. FINANCIAL INFORMATION			113
ITEM 9. THE OFFER AND LISTING			114
ITEM 10. ADDITIONAL INFORMATION			115
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			122
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES			123
PART II.			123
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES			123
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS			123
ITEM 15. CONTROLS AND PROCEDURES			123
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT			124
ITEM 16B. CODE OF ETHICS			124
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES			124
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES			124
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS			124
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT			124
ITEM 16G. CORPORATE GOVERNANCE			124
PART III.			125
ITEM 17. FINANCIAL STATEMENTS			125
ITEM 18. FINANCIAL STATEMENTS			125
ITEM 19. EXHIBITS			125
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
EX-4.70
EX-4.71
EX-4.72
EX-4.73
EX-4.74
EX-4.75
EX-4.76
EX-4.77
Ex-4.78
EX-8.1
EX-12.1
EX-12.2
EX-13.1
EX-13.2
EX-15.1

INTRODUCTION

     This annual report contains translations of Renminbi amounts into U.S. dollars at specified rates solely for the convenience of the reader. Unless otherwise noted, the asset and liability accounts have been translated from Renminbi to U.S. dollars using the middle rates promulgated by Bank of China at the balance sheet dates, and income and expense items have been translated using the average of the middle rates promulgated by Bank of China during the applicable period. We make no representation that the Renminbi amounts referred to in this annual report could have been or could be converted into U.S. dollars at any particular rate or at all. See “Item 3 — A. Selected Consolidated and Other Financial and Operating Data — Exchange Rate Information”.

     Unless the context otherwise requires, references in this annual report to:

     • “years” are to calendar years and, where the context requires, our fiscal year;

     • our “hydroelectric power projects” includes the operating company which owns the project, where the context requires;

     • “we,” “us,” “our company,” “our,” “CHC” and “China Hydroelectric” refer to China Hydroelectric Corporation and its subsidiaries. For SEC reporting purposes, China Hydroelectric Corporation is the successor company to our predecessor company, Binglangjiang. Our financial statements and other financial and operating data presented in this annual report reflect the results of operations of Binglangjiang from April 25, 2007, the date we acquired Binglangjiang;

     • “Binglangjiang” refers to Yunnan Huabang Electric Power Development Co. Ltd., which for SEC reporting purposes is our predecessor company. Binglangjiang’s financial and operating data presented in this annual report are solely those of Binglangjiang, and do not reflect the results of operations of our company or our other subsidiaries;

     • “shares” or “ordinary shares” refers to our ordinary shares, par value $0.001 per share;

     • “ADSs” refers to our American depositary shares, each of which represents three ordinary shares, and “ADRs” refers to the American depositary receipts that evidence our ADSs;

     • “China” or “PRC” refers to the People’s Republic of China, excluding, for the purposes of this annual report only, Taiwan, Hong Kong and Macau;

     • “RMB” or “Renminbi” refers to the legal currency of China and “US$”, “U.S. dollars” or “$” refers to the legal currency of the United States;

     • “effective tariff” means gross revenues, which are revenues not netted for VAT or other applicable business surcharges, if any, recorded in the relevant period, divided by the quantity of electricity sold in such period; and

     • “effective utilization rate” means the quantity of electricity sold in the relevant period expressed as a percentage of installed capacity for electricity generation in such period.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     This annual report contains forward-looking statements that relate to our current expectations and views of future events. These forward-looking statements are contained principally in the items entitled “Information on the Company,” “Risk Factors,” “Operating and Financial Review and Prospects,” “Financial Information” and “Quantitative and Qualitative Disclosures About Market Risk.” These statements relate to events that involve known and unknown risks, uncertainties and other factors, including those listed under “Risk Factors,” which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

     In some cases, these forward-looking statements can be identified by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “potential,” “continue,” “is/are likely to” or other similar expressions. These forward-looking statements include, among other things, statements relating to:

     • our business strategies and plan of operations;

     • our ability to acquire productive hydroelectric companies and assets;

     • our capital expenditure and funding plans;

     • our operations and business prospects;

     • our dividend policy;

     • estimates of production of and tariffs applicable to our hydroelectric power projects;

     • projects under development, construction and planning;

     • the regulatory environment for the power industry in general and the level of policy support for renewable energy; and

     • future developments in the PRC hydropower industry.

     These forward-looking statements are subject to risks, uncertainties and assumptions, some of which are beyond our control. In addition, these forward-looking statements reflect our current views with respect to future events and are not a guarantee of future performance. Actual outcomes may differ materially from the information contained in the forward-looking statements as a result of a number of factors, including, without limitation, the risk factors set forth in “Risk Factors” and the following:

     • supply and demand changes in the electric power markets;

     • changes in electricity tariffs in the regions in which we operate;

     • our production and transmission capabilities;

     • availability of sufficient and reliable transmission resources;

     • our relationship with, and other conditions affecting, the power grids we service;

     • risks inherent to hydroelectric power production, in particular hydrological conditions, as well as changes in geologic conditions and equipment failure;

     • weather conditions or catastrophic weather-related damage;

     • competition, in particular increased supply of power generated by renewable energy resources available to the power grids we service;

     • our plans and objectives for future operations and expansion or consolidation;

     • the effectiveness of our cost-control measures;

     • inflationary trends and interest rate changes;

     • the effects of changes in currency exchange rates;

     • environmental laws, including those directly affecting our operations, and those affecting our customers’ demand for electricity;

     • changes in political, economic, legal and social conditions in China, including the PRC government’s specific policies with respect to investment in the hydroelectric and power industries, economic growth, inflation, foreign exchange and the availability of credit; and

     • our liquidity and financial condition.

     The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made in this annual report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this annual report and the documents that we reference in this annual report and have filed as exhibits to this annual report, completely and with the understanding that our actual future results or performance may be materially different from what we expect.

PART I.

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

     Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

     Not applicable.

ITEM 3. KEY INFORMATION

A. Selected Consolidated and Other Financial and Operating Data

     On April 25, 2007, we acquired Binglangjiang, and commenced our business as an operator of small hydroelectric power projects in China. The following tables present our selected historical consolidated financial information, and that of our predecessor company Binglangjiang. Our selected consolidated statements of operations data for the years ended December 31, 2007, 2008 and 2009 and the selected consolidated balance sheet data as of December 31, 2008 and 2009 have been derived from our audited consolidated financial statements and the related notes included elsewhere in this annual report, which have been audited by Ernst & Young Hua Ming, an independent registered public accounting firm. The selected statements of operations data for Binglangjiang for the year ended December 31, 2006 and the period from January 1, 2007 to April 24, 2007 and the selected consolidated balance sheet data as of December 31, 2006 have been derived from the audited financial statements and the related notes of Binglangjiang not included in this annual report. Our audited consolidated financial statements, and the audited financial statements of our predecessor company Binglangjiang, are prepared and presented in accordance with United States generally accepted accounting principles, or U.S. GAAP. Historical results are not necessarily indicative of the results of operations to be expected for future periods.

     Binglangjiang is considered our predecessor company for SEC reporting purposes, as we acquired substantially all of the business of Binglangjiang and our own operations prior to that acquisition were insignificant compared to the operations of Binglangjiang. Binglangjiang’s financial statements and other financial and operating data presented in this annual report are solely those of Binglangjiang, are set forth for the purpose of presenting the financial information of our predecessor company and do not reflect the results of operations of our company or our other subsidiaries. Our consolidated financial statements and other financial and operating data presented in this annual report reflect the results of operations of Binglangjiang from April 25, 2007, the date we acquired Binglangjiang.

     You should read this information together with “Operating and Financial Review and Prospects” and the consolidated and other financial statements and the related notes of our company and our predecessor company Binglangjiang included elsewhere in this annual report.

		Binglangjiang (Predecessor)									Our Company (Successor)
		For the				For the
		Year				Period from					For the Period
		Ended				January 1					from July 10
		December				to					(inception) to				For the Year Ended
		31,				April 24,					December 31,				December 31,
		2006				2007					2006				2007				2008				2009
		(US$ in thousands, except share and per share data)
Consolidated Statements of Operations Data
Revenue			2,075				571					—				2,434				14,715				36,175
Cost of Revenue			(691	)			(219	)				—				(813	)			(6,025	)			(17,183	)
Gross profit			1,384				352					—				1,621				8,690				18,992
Operating expenses:
General and Administrative expenses			(13	)			(23	)				(901	)			(2,560	)			(6,761	)			(9,099	)
Operating income(loss)			1,371				329					(901	)			(939	)			1,929				9,893
Other income and expenses:
Interest income			1				—					340				1,051				1,340				510
Interest expenses			(914	)			(285	)				(873	)			(3,275	)			(5,847	)			(14,228	)
Change in fair value of derivative financial liabilities and warrant liability			—				—					—				(266	)			420				(13,793	)
Exchange loss			—				—					—				(1,095	)			(1,067	)			(23	)
Share of losses in an equity investee			—				—					—				(27	)			(503	)			(70	)
Other income, net			—				—					—				8				144				(225	)
Income (loss) before income tax expenses			458				44					(1,434	)			(4,543	)			(3,584	)			(17,936	)
Income tax expenses			(19	)			(1	)				—				(17	)			(444	)			(1,492	)
Consolidated net income (loss)			439				43					(1,434	)			(4,560	)			(4,028	)			(19,428	)
Less:
Net loss attributable to noncontrolling interests			—				—					—				—				41				32
Net income (loss) attributable to China Hydroelectric Corporation shareholders			439				43					(1,434	)			(4,560	)			(3,987	)			(19,396	)

		Binglangjiang (Predecessor)									Our Company (Successor)
						For the
		For the				Period
		Year				from					For the Period
		Ended				January 1					from July 10
		December				to					(inception) to				For the Year Ended
		31,				April 24,					December 31,				December 31,
		2006				2007					2006				2007				2008				2009
		(US$ in thousands, except share and per share data)
Consolidated Statements of Operations Data
Less:
Cumulative dividends on Series A convertible redeemable preferred shares			—				—					—				—				(14,680	)			(19,836	)
Cumulative dividends on Series B convertible redeemable preferred shares			—				—					—				—				(5,531	)			(14,412	)
Cumulative dividends on Series C convertible redeemable preferred shares			—				—					—				—				—				(356	)
Changes in redemption value of Series A convertible redeemable preferred shares			—				—					—				—				(10,569	)			—
Changes in redemption value of Series B convertible redeemable preferred shares			—				—					—				—				(4,134	)			—
Changes in redemption value of Series C convertible redeemable preferred shares			—				—					—				—				—				(1,872	)
Loss attributable to ordinary shareholders			—				—					(1,434	)			(4,560	)			(38,901	)			(55,872	)
Basic and diluted net loss attributable to China Hydroelectric Corporation shareholders per share			—				—					(0.34	)			(0.33	)			(2.50	)			(3.59	)
Weighted average ordinary shares used in basic and diluted net loss attributable to China Hydroelectric Corporation shareholders per share computation			*				*					4,240,822				13,817,466				15,554,416				15,541,666

		Binglangjiang (Predecessor)												Our Company (Successor)
						For the
						Period
						from				For the Period
		For the Year				January 1				from July 10
		Ended				to				(inception) to				For the Year Ended
		December 31,				April 24,				December 31				December 31,
		2006				2007				2006				2007				2008				2009
					(US$ in thousands, except share and per share data)
Pro forma basic net (loss) income attributable to China Hydroelectric Corporation shareholders per share on an as converted basis			—				—				—				—				(0.07)	(1)			(0.16)	(1)
Pro forma diluted net (loss) income attributable to China Hydroelectric Corporation shareholders per share on an as converted basis			—				—				—				—				(0.07)	(1)			(0.16)	(1)
Shares used in pro forma basic net (loss) income attributable to China Hydroelectric Corporation shareholders per share computation			—				—				—				—				55,415,130	(1)			122,427,137	(1)
Shares used in pro forma diluted net (loss) income attributable to China Hydroelectric Corporation shareholders per share computation																			55,415,130	(1)			122,427,137	(1)
Number of shares as adjusted to reflect changes in capital			*				*				—				—				58,289,666	(1)			134,100,575	(1)
Other Financial Data:
EBITDA, as adjusted (2)			*				*				(901	)			(320	)			6,474				22,188

							Our Company (Successor)
		Binglangjiang																					Pro forma
		(Predecessor)																					Balance Sheet
		As of December 31,					As of December 31,																At December 31
		2006					2006				2007				2008				2009				2009
		(US$ in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents			142					628				15,606				38,693				31,618				31,618
Restricted cash			—					50,340				—				—				—				—
Accounts receivable, net			152					—				329				3,137				8,434				8,434
Deferred tax assets			—					—				—				1,166				489				489
Amounts due from related parties			64					33				25				13				—				—
Debt issuance costs			—					—				47				—				—				—
Amounts due from an equity investee			—					—				287				4,534				—				—
Prepayments and other current assets			206					—				3,269				9,437				4,582				4,582
Total current assets			564					51,001				19,563				56,980				45,123				45,123
Debt issuance costs			—					975				—				—
Investment in an equity investee			—					—				4,721				4,295				—				—
Deferred IPO initial public offering costs			—					—				—				6,032				12,774				—
Property, plant and equipment, net			16,752					—				29,046				365,190				423,200				423,200
Intangible assets, net			—					—				3,008				3,666				4,513				4,513
Goodwill			—					—				2,773				96,533				107,824				107,824
Deferred tax assets			—					—				—				—				1,231				1,231
Other non-current assets			—					—				—				872				399				399
Total non current assets			16,752					975				39,548				476,588				549,941				537,167
Total assets			17,316					51,976				59,111				533,568				595,064				582,290
Total current liabilities			2,392					850				14,436				77,285				102,492				102,492
Long term loan			13,831					—				10,269				138,133				172,469				172,469
Deferred tax liabilities			—					—				—				13,415				18,805				18,805
Other non-current liabilities			—					—				—				568				104				104
Long-term note			—					50,285				—				—				—				—
Convertible redeemable preferred shares			—					—				—				299,236				353,840
Total China Hydroelectric Corporation shareholders’ equity(deficit)			1,093					841				34,406				4,181				(53,435	)			287,631
Noncontrolling interests			—					—				—				750				789				789
Total liabilities and shareholders’ equity (deficit)			17,316					51,976				59,111				533,568				595,064				582,290

		Binglangjiang (Predecessor)									Our company (Successor)
		As of and				As of and					As of and
		For the Year				For the Period from					For the Period Ended
		Ended				January 1 to					December 31,
		December 31, 2006				April 24, 2007					2007				2008				2009
Selected Operation Data (1)
Installed Capacity(MW)			21.0				21.0					58.0	(2)			271.0	(2)			376.60
Electricity Sold(kWh)			106,646,530				23,495,595					108,303,945	(3)			333,964,005	(3)			798,945,372
Effective tariff (RMB/kWh)			0.164				0.2					0.18	(4)			0.33	(4)			0.34	(4)

Exchange Rate Information

     Our financial statements and other financial data included in this annual report are presented in U.S. dollars. Our business and operations are primarily conducted in China through our PRC subsidiaries. The functional currency of our PRC subsidiaries is RMB and their revenues and expenses are denominated in that currency. Unless otherwise noted, the asset and liability accounts have been translated from Renminbi to U.S. dollars using the middle rates promulgated by Bank of China at the balance sheet dates, and income and expense items have been translated using the average of the middle rates promulgated by Bank of China during the applicable period. The middle rates promulgated by Bank of China were RMB7.8087 to $1.00, RMB7.3046 to $1.00, RMB6.8346 to $1.00 and RMB6.8282 to $1.00 as of December 31, 2006, 2007, 2008 and 2009, respectively, and the averages of the middle rates during such years were RMB7.9395 to $1.00, RMB7.5560 to $1.00, RMB7.0696 to $1.00 and RMB6.8314 to $1.00, respectively. We make no representation that any RMB or U.S. dollar amounts referred to in this annual report could have been or could be converted into U.S. dollars or RMB, as the case may be, at any particular rate or at all. The effects of foreign currency translation adjustments are included as a component of accumulated other comprehensive income in our shareholders’ equity. The PRC government imposes controls over its foreign currency reserves in part through direct regulation of the conversion of RMB into foreign exchange and through restrictions on foreign trade. On May 19, 2010, the middle rate was RMB6.8278 to $1.00.

B. Capitalization and Indebtedness

     Not applicable.

C. Reasons for the Offer and Use of Proceeds

     Not applicable.

D. Risk Factors

     An investment in our securities involves significant risks. You should carefully consider the risks described below, together with all of the other information in this annual report, including our consolidated and other financial statements and related notes included elsewhere in this annual report, before you decide to purchase our securities. If any of these risks actually occurs, our

business, prospects, financial condition or results of operations could be materially and adversely affected, the trading price and value of our securities could decline and you could lose all or part of your investment.

Risks Relating to our Company and the PRC Hydroelectric Power Industry

We have a limited operating history which provides limited reference for you to evaluate our ability to achieve our business objectives.

     We were formed in July 2006 as a Cayman Islands exempted company with limited liability without any operating business. We have acquired a total of thirteen operating hydroelectric power projects and will continue to carry out our acquisition strategy in China. Our financial condition, results of operations and our future success will, to a significant extent, depend on our ability to continue to acquire and develop hydropower projects throughout China and to achieve significant economies of scale. Our company has a limited operating history, is subject to the risks and uncertainties associated with early stage companies and has historically operated at a loss. Accordingly, you will have a limited basis on which to evaluate our ability to achieve our business objectives. We cannot assure you that more acquisitions can be consummated on terms favorable to us or at all, or that if we achieve those acquisitions we will be able to operate our expanded business profitably. We also may not successfully complete the greenfield projects we undertake to develop given our lack of experience developing greenfield projects, which refer to projects that lack one or more construction permits and have not begun construction. If we fail to achieve our business objectives, then we may not be able to realize our expected revenue growth, maintain our existing revenue levels or operate at a profit. Even if we do realize our business objectives, our business may not be profitable in the future.

     Our business is dependent upon hydrological conditions, which may from time to time result in conditions that are unfavorable to our business operations.

     Our hydroelectric power generating prospects are dependent upon hydrological conditions prevailing from time to time in the broad geographic regions in which our existing and future hydroelectric power projects are located. There can be no assurance that the water flows at our existing and future sites will be consistent with our expectations, or that climatic and environmental conditions will not change significantly from the prevailing conditions at the time our projections were made. Water flows vary each year, and depend on factors such as rainfall, snowfall, rate of snowmelt and seasonal changes. Our existing and future hydroelectric power projects may be subject to substantial variations in climatic and hydrological conditions which may reduce water flow and thus our ability to generate electricity. While we have selected and will continue to select our hydroelectric power projects for acquisition in part on the basis of their projected outputs, the actual water flow required to produce those outputs may not exist or be sustained. For example, utilization at all our hydroelectric power projects in 2007 was below our forecasts due to low levels of precipitation during the year throughout China. If hydrological conditions result in droughts or other conditions that negatively affect our existing or proposed hydroelectric generation business, our results of operations could be materially and adversely affected.

     The operation of our hydroelectric power projects and customer demand for our power may be vulnerable to disruptions caused by natural and man-made disasters, which may materially and adversely affect our results of operations.

          Our hydroelectric power projects could be required to cease operating in the event of a drought, and to cease operating or even be damaged in the event of a flood. Water supply to our hydroelectric power projects and the projects themselves are vulnerable to natural disasters including, but not limited to, earthquakes, storms, tornadoes and floods, as well as disasters caused by human actions such as terrorist attacks, military conflicts and other deliberate or inadvertent actions which may affect the availability of water supplies or water flow to our hydroelectric power projects. For example, in 1988, heavy floods occurred in Zhejiang province, causing large scale damage to dams and the water supply system. A severe snowstorm in Zhejiang province in 2008 interrupted the transmission system in the area and contributed to the decrease in the effective utilization rate of Shapulong that year. In 2008, a major earthquake struck Sichuan province, causing great loss of life and property and disruption to the local economy. The earthquake in 2008 caused damage to the tailwater concrete apron and the spillway gates of Liyuan hydroelectric power project and the repair of such damage cost RMB 11.7 million ($1.7 million) and was completed in March 2010. Our hydroelectric power projects located in Yunnan province, Sichuan province and Fujian province are all in areas of relatively high seismic risk as compared to other areas of China. Such disasters are unpredictable and can significantly damage our access to water supply and power plant equipment as well as the property of our consumers. Under such circumstances, market demand for power in general may be significantly and adversely affected, reducing the need for the electricity we produce, and we may be unable to continue operation of our plants or to produce the level of electricity we expect. The insurance coverage we maintain may not be adequate to compensate us for all damages and economic losses which may arise in connection with these disasters. Such disruption to our operations could materially and adversely affect our results of operations.

     We may encounter difficulties in identifying suitable acquisition opportunities, which would result in us being dependent upon a limited number of hydroelectric power projects and having limited revenue growth potential.

     Our ability to implement our acquisition strategy will depend on a number of factors, in particular, our ability to identify suitable acquisition targets and reach agreements with vendors for acceptable consideration and on commercially reasonable terms. We believe identifying and acquiring projects on reasonable terms may be more difficult in the future as domestic and international competitors seek to acquire small hydroelectric power projects in China.

     If we are unable to acquire suitable hydroelectric power projects in China, we will continue to remain dependent upon a limited number of existing hydroelectric power projects. The resulting lack of diversification may:

	•		result in our dependence upon the performance of a limited number of operating plants;
	•		result in our dependence upon electricity sales in limited geographical areas;
	•		subject us to increased risks associated with drought or other natural disasters in a particular geographical area; and
	•		limit our ability to grow our revenues and to obtain the benefits of scale that we anticipate.

          In such event, we will not be able to diversify our operations to spread risks or offset losses, unlike other entities that may complete acquisitions in different geographical areas, different industries or different segments of a single industry.

          Greenfield projects and projects under construction present substantial development, construction, start-up and partnership risks, which could materially and adversely affect our results of operations, financial condition and growth prospects.

          Greenfield projects, in particular the Wuyue pumped storage facility, and projects under construction, present substantial development risk. The development and construction of hydroelectric power projects is time-consuming and complex and requires significant capital investment. In connection with the development and construction of hydroelectric power projects, we will seek to obtain government permits and approvals, land purchase or leasing agreements, equipment procurement and construction contracts, operation and maintenance agreements, and sufficient equity capital and debt financing. Factors that may impair our ability to develop and construct hydroelectric power projects include:

	•		delays in obtaining various regulatory approvals, licenses or permits from different governmental authorities at different levels, including permission for the construction and operation of the hydroelectric power project itself, the environmental permits and permits to use the relevant land;
	•		shortages or increases in the cost of equipment, materials or labor;
	•		adverse weather conditions, which may delay the completion of hydroelectric power projects or substations, or natural disasters, accidents or other unforeseen events;
	•		unforeseen engineering, design, environmental or geological problems;
	•		opposition of local interests;
	•		strikes and labor disputes;
	•		inability to obtain financing on satisfactory terms; and
	•		adverse changes in the PRC regulatory environment.

          Any of these factors may cause delays in completion of hydroelectric power projects and may increase the cost of contemplated projects. If we are unable to complete the projects contemplated, the costs incurred in connection with such projects may not be recoverable. Even if we complete these projects, as a result of project delays, cost overruns, changes in market circumstances or other reasons, we may not be able to achieve the intended economic benefits or demonstrate the commercial

viability of these projects, which may materially and adversely affect our results of operations, financial condition and growth prospects.

          In addition, the commencement of operations at a newly constructed hydroelectric power project involves many risks, including start-up problems, the breakdown or failure of equipment or processes, performance below expected or contracted levels of output or efficiency and problems with the construction of new supporting infrastructure, such as grid transmission equipment. While manufacturers’ warranties are generally obtained for limited periods relating to each project and its equipment in varying degrees, and construction contractors may guarantee certain performance levels, subject to the payment of liquidated damages, the proceeds of such warranties or performance guarantees, if any, may not be adequate to cover lost revenues or increased costs and expenses associated with equipment problems during project start-up. We also may develop projects with local development partners, which exposes us to risks associated with our partners’ failure to retain development rights, obtain permits and approvals required for the development of a project or perform their management, construction or financing obligations. Realization of any of these risks could materially and adversely affect our results of operations, financial condition and growth prospects.

We derive our revenues solely from the sale of hydroelectric power electricity and each of our projects typically has only one customer. Any prolonged disruption to the demand for hydropower or termination of a customer relationship may cause our revenues to decrease significantly.

          We derive revenues solely from the sale of electricity generated by hydroelectric power projects, and most of our power is sold to one of two national power grids. If for any reason the national power grids reduce or eliminate their purchases of hydropower, whether due to the emergence of a cheaper renewable energy source, withdrawal of government policy support for the dispatch of renewable energy or a severe drop in the PRC’s demand for power, we may not have alternative customers readily available to us. Without alternative sources of income, our revenues would decrease significantly should a reduction in demand for hydropower or lack of customers continue for a prolonged period.

Our power purchase agreement for our Wangkeng hydroelectric power project has recently expired; failure to renew the power purchase agreement could result in a reduction or complete loss of revenues from the hydroelectric power project, which would have a materially adverse effect on our revenues, results of operations and net cash used in operating activities.

          Our power purchase agreements with the local grids to which our hydrolectric power projects are connected generally have terms of one to five years. Some of these agreements provide for automatic renewal while others do not. Our Wangkeng hydroelectric power project power purchase agreement expired as of December 31, 2009 and did not provide for automatic renewal. We are in the process of negotiating a new power purchase agreement for the project and expect to have an agreement signed by end of May 2010. During the current renegotiation process, we have continued to supply power to the local power grid and to receive payment from the local power grid as if the expired power purchase agreement was still in effect. If we should be unable to renegotiate a power purchase agreement with the local grid, it is unlikely we would be able to obtain alternative customers for the power generated by the project, as only one grid is available to each hydroelectric power project and there are no neighboring industrial sites ready to take up the power.

We depend on the experience of our executive officers and our business may be severely disrupted in the event that we lose their services and are unable to find replacements with comparable experience and expertise.

          We believe that our future success is dependent upon the continued services of our executive officers, as we rely on their industry experience and expertise in our business operations. In particular, we rely heavily on John D. Kuhns, our Chairman and Chief Executive Officer, Dr. You-Su Lin, Chairman of Beijing A.B.C. Investment, “James” Tie Li, our Chief Financial Officer and Executive Vice President, and Wu Gan, President and General Manager of Beijing A.B.C. Investment, for their business vision, management skills and technical expertise in the hydroelectric industry as well as their working relationships with many of our potential acquisition targets, the power grids we service and other participants in the hydroelectric industry. We do not maintain key-man life insurance for any of our executive officers. If any of these executive officers were unable or unwilling to continue in their present positions, or if they left our company, we may not be able to replace them with comparably skilled executives, which would cause severe disruption to our ability to manage our business. Each of our executive officers has entered into an employment or other agreement with us, which contains confidentiality and non-competition provisions. However, if any disputes were to arise with

respect to such agreement, even if the executive left our company to join or form a competing entity, we cannot assure you of the extent to which such person’s agreement could be enforced in China because the Chinese legal system, especially with respect to the enforcement of such provisions, is still developing. If we are unable to retain or replace our key personnel and other key employees, we may not be able to implement our business strategy and our financial condition and results of operations may be materially and adversely affected.

We will need additional funding to accomplish our growth strategy and may be unable to raise capital on terms favorable to us or at all, which could increase our financing costs, dilute your ownership interests, affect our business operations or force us to delay, reduce or abandon our growth strategy.

     Our growth strategy is to acquire and develop additional hydroelectric power projects in China and expand those projects with potential for expansion. To successfully implement this growth strategy, we will need to raise additional funds. Our ability to arrange financing and the cost of such financing are dependent on numerous factors, including but not limited to:

	•		general economic and capital market conditions;
	•		the availability of credit from banks or other lenders;
	•		investor confidence in us; and
	•		the continued performance of our hydroelectric power projects.

          We cannot predict when, if ever, our operations will generate sufficient cash flows to fund our capital investment requirements. Until they do, we will be required to finance our cash needs through public or private equity offerings, bank loans or other debt financing, or otherwise. We currently intend to increase our levels of debt financing to optimize our capital structure. There can be no assurance that international or domestic financing for future power plant acquisitions, development and expansion of existing hydroelectric power projects will be available on terms favorable to us or at all, which could force us to delay, reduce or abandon our growth strategy, increase our financing costs, or both.

          Additional funding from debt financings may make it more difficult for us to operate our business because we would need to make principal and interest payments on the indebtedness and may be obligated to abide by restrictive covenants contained in the debt financing agreements, which may, among other things, limit our ability to make business and operational decisions and pay dividends. Furthermore, raising capital through public or private sales of equity to finance acquisitions or expansion could cause earnings or ownership dilution to your shareholding interests in our company.

Assumptions applied to our investment analyses and feasibility studies may not be accurate, and thus our actual return on investments, operational results, and overall growth may be materially and adversely affected.

          In performing investment analysis and feasibility studies for our acquisition and development targets, we consider factors such as: (i) demand for power and growth potential in the province where the hydroelectric power projects is located, (ii) increase in power generation capacity in the locality, (iii) the average tariff of hydroelectric power projects of similar types and capacity, (iv) quality of transmission systems to the local power grids, (v) facilities and technology at the power plant and (vi) ability to retain existing debt financing for the plant or obtain new financing. However, much of the information we rely on in preparing these analyses is provided by the sellers of the plants. With the rapid development of the PRC hydroelectric power industry in recent years, there is some increased risk of plants being built based on inaccurate or incomplete technical data. As a result, the assumptions we use to perform our internal investment analyses and feasibility studies may not be accurate or complete. If any one of our observations or assumptions, or a combination thereof, proves to be inaccurate, then our estimated returns on investments, operational results and our overall growth may be materially adversely affected.

The operations of our hydroelectric power projects may be adversely affected by the failure of key equipment, civil structures or transmission systems, which could result in lost revenues, increased maintenance costs and our owing damages to our customers for lost revenues.

          The breakdown of generation equipment or failure of other key equipment or of a civil structure in one or more of our hydroelectric power projects could disrupt the generation of electricity and result in revenues being lower than expected. Further, any breakdown or failure of one or more of our transmission systems could disrupt transmission of electricity by a power plant to the power grid. We have in the past experienced an equipment breakdown at two of our hydroelectric power projects, resulting in temporary suspensions of electricity generation and distribution. Repair of such breakdowns may take one or two days or up to a

month, depending on the nature of the problem and availability of spare parts. In addition, if the problem is related to the grid, we will not be able to dispatch our power until the grid carries out the necessary repairs. A portion of the generation facilities that we have acquired, or may acquire in the future, were, or may have been, constructed many years ago. Older generating equipment may require significant capital expenditure to keep it operating efficiently. Such equipment is also likely to require periodic upgrading and improvement. Breakdown or failure of one of our plants also may prevent us from performing under the applicable power sales agreement which, in certain situations, could result in termination of the agreement or incurring liability for liquidated damages. These events may reduce our ability to generate power, resulting in loss of revenues and increased maintenance costs.

Our power generating operations may be adversely affected by operational risks, which may result in uninsured losses.

          Operating hydroelectric power projects involves many risks and hazards which may be beyond our control and could cause significant business interruptions, personal injuries and property or environmental damage, and could increase power generating costs at affected hydroelectric power projects for an unknown duration. These risks include but are not limited to:

	•		failure of power transmission systems;
	•		unexpected maintenance or technical problems;
	•		human error;
	•		failure of our mechanical, software or monitoring systems; and
	•		industrial accidents.

          The occurrence of any of these events, and the consequences resulting from them, may not be covered adequately or at all by our insurance policies. We do not currently carry any third-party liability insurance, business interruption insurance or insurance covering environmental damage arising from accidents on our property or relating to our operations. See “Information on the Company — Insurance”. Uninsured losses incurred or payments we may be required to make may have a material adverse effect on our results of operations and financial condition.

Our operations may be interrupted by realization of unexpected risks or difficulties in integrating acquired businesses, which could interrupt our existing business and materially and adversely affect our results of operations.

     Our continued growth and ability to leverage our management expertise depend on the successful implementation of our acquisition strategy. We cannot assure you that any particular acquisition will produce the intended benefits. For instance, if we fail to integrate an acquired project into our operations successfully, or the synergies expected from an integration ultimately fail to materialize, then our existing business operations may be interrupted. We may have as a result expended significant management time, capital and other resources to the transaction, which interrupted our existing business operations.

     Risks which may be incurred through acquisitions include, but are not limited to:

	•		potential construction or engineering problems which may expose us to severe economic loss or legal liabilities and require substantial expenditure from us to remediate;
	•		unforeseen or hidden liabilities, including exposure to legal proceedings, associated with newly acquired companies;
	•		failure to generate sufficient revenues to offset the costs and expenses of acquisitions;
	•		potential impairment losses and amortization expenses relating to goodwill and intangible assets arising from any of such acquisitions, which may materially reduce our net income or result in a net loss; and
	•		possible contravention of Chinese regulations applicable to such acquisitions.

Any one or a combination of the above risks could interrupt our existing business and materially adversely affect our results of operations.

Our growth strategy is dependent upon our ability to manage our growth effectively which, if unsuccessful, could result in a material adverse impact on our financial condition and results of operations.

          Our business and operations have been expanding rapidly. The success of our growth strategy depends in part upon our ability to manage our rapid growth, including, for example, our ability to assimilate management of acquired plants into our own management structure, to hire, train, supervise and manage new employees, to establish and maintain adequate financial control and reporting systems and other systems and processes, and to manage a rapidly growing and much larger operation. We cannot assure

you that we will be able to:

	•		expand our systems and processes effectively or efficiently or in a timely manner;
	•		allocate our human resources optimally or reduce headcount without experiencing community protest, strike or other social unrest;
	•		identify and hire qualified employees or retain valued employees;
	•		incorporate effectively hydroelectric power projects in various stages of development that we may acquire;
	•		maintain good relationship with power grids; or
	•		centralize and improve the efficiency of the management and operations of the hydroelectric power projects acquired.

          If we fail to effectively manage our growth, then our financial condition and results of operations could be materially adversely affected.

On-grid tariffs are set based on regulatory guidance, actual supply of electricity to a power grid and regional demand for electricity, and changes in these factors may materially and adversely affect our results of operations.

          We make all of our electricity sales to power grids and such sales are subject to on-grid tariffs. Since April 2001, the Chinese government has gradually implemented a new on-grid tariff setting mechanism based on the actual costs of power projects as well as the average costs of comparable power projects that were constructed during the same period within the same provincial power grid. This on-grid tariff setting mechanism was intended to replace the old mechanism for setting on-grid tariffs for planned output. Based on our experience, the determination of such average costs usually takes into consideration such factors as:

	•		construction costs, which vary according to the installed capacity of the individual power projects;
	•		operating and administrative expenses;
	•		maintenance and repair costs of power projects; and
	•		interest expense on outstanding debts.

          Based on the factors listed above, we receive lower tariffs in comparison to thermal power projects because we have (i) minimal fuel costs and (ii) lower operating and capital construction costs. Any future reductions in our tariffs, or inability to obtain higher tariffs, for example, to cover any increased costs we may have to incur, as a result of the on-grid tariff-setting mechanism or a change to such on-grid tariff-setting mechanism may adversely affect our revenues and profits. In some regions we negotiate annually with the local grid operators the on-grid tariff for our power before applying to the government for approval of the tariff, while in other regions the tariff is set by agreement between the power grid and the government.

          In addition, the price for electric power sold to end consumers is fixed in China because the sales price of electricity is uniformly formulated by the National Development and Reform Commission. Thus, we must estimate the price at which the National Development and Reform Commission will allow power grids to sell electricity and set our prices so that, from the power grids’ perspective, their cost for our electricity is acceptable when considered with the costs of other power producers on the grid. Thus, although our on-grid tariffs are lower than those for thermal power projects, the tariff levels we obtain from local grids may still be impacted by changes in the cost of generating thermal power and actual regional demand for power. In addition, if demand for electricity rises beyond expectations, then we cannot raise our prices accordingly to benefit from the increased demand. If actual sales prices are significantly below our estimates for such sales prices, then our financial condition and results of operations may be materially and adversely affected.

If less than all of the electricity we generate is dispatched by the grids, our future revenues will be reduced.

          Our profitability depends, in part, upon each of our hydroelectric power projects generating electricity at a level sufficient to meet or exceed the planned generation agreed with our local dispatch company, which in turn will be subject to local demand for electric power and dispatching to the grids by the dispatch centers of the local grid companies.

          The dispatch of electric power generated by a power project is controlled by the dispatch centers of the applicable grid

companies pursuant to a dispatch agreement with us and pursuant to governmental dispatch regulations. In each of the markets in which we operate, we compete against other power projects for power sales, and dispatch is allocated based on actual demand from the grid. No assurance can be given that the dispatch centers will dispatch the full amount of the planned generation of our power projects. A reduction by the dispatch centers in the amount of electric power dispatched relative to our hydroelectric power projects’ planned generation could have a material adverse effect on our power generation and thus reduce our revenues.

Compliance with environmental regulations can be costly, and we may become subject to further environmental compliance requirements in connection with our operations, which could materially and adversely affect our results of operations and financial condition.

          We are required to comply with PRC national and local regulations regarding environmental protection for the construction and operation of our hydroelectric power projects. For all of our existing hydroelectric power projects, we have applied for all the environmental permits that are necessary under current PRC laws and regulations to conduct our business, but have not obtained some of the environmental permits from the relevant governmental authorities yet. Furthermore, to the extent that our existing hydroelectric power projects may have been in compliance with PRC environmental protection laws and regulations at the time they were constructed, we cannot assure you that the PRC government will not require retroactive application of current laws and regulations to such old plants. Compliance with environmental regulations can be very expensive, and non-compliance with these regulations may result in adverse publicity, potentially significant monetary damages and fines and suspension of our business operations. In addition, if more stringent regulations are adopted in the future, the costs of compliance with these new regulations could be substantial. If we fail to comply with any future environmental regulations, we may be required to pay substantial fines, suspend production or even cease operations. We do not carry any insurance for damages resulting from failure to comply with environmental regulations.

          In addition, China currently has no minimum flow requirements such as those that have been implemented by other countries that employ hydroelectric power. The purpose of minimum flow requirements is to ensure that there is enough water upstream and downstream for other users, and for navigation, fish and other wildlife. China may implement minimum flow requirements in the future, and to the extent we do not have sufficient water supply due to such minimum flow requirements, we may have to reduce our power generation or cease operation of the affected plants, as a result of which our results of operations and financial condition would be materially and adversely affected.

Our business and business prospects rely in part on policy support from the PRC government, and our financial condition and results of operations may be materially and adversely affected if we lose such support.

          National, provincial and local governments in China support the expansion of hydroelectric power, which eases the approval process for facility acquisition, construction and financing. Under the PRC Renewable Energy Law, Catalogue for the Guidance of Foreign Investment Industries, the Eleventh Five-year Plan of the Development of Renewable Energy Resources and other relevant laws, expansion of both large- and small-scale hydroelectric power production is one of the priorities for the development of the nation’s power supply, and foreign investment in the sector is encouraged. We currently enjoy several types of government support, including provision of bank loans, sometimes at lower interest rates than those borne by other private companies, policy support for local grids to purchase all the power we generate and lower levels of VAT levied on small hydropower production in some provinces where we have operations. If for any reason, such as development of new energy production technologies or migration to other renewable energy sources, China removes such policy support, our financial condition and results of operations may be materially and adversely affected.

Competition in the PRC power industry may increase, and our results of operations and growth prospects may be materially and adversely affected if we are unable to compete effectively.

          We compete in the Chinese domestic market with other PRC power generation companies. The five biggest power companies in China, namely, China Huaneng Group, China Datang Group, China Huadian Group, China Guodian Group and China Power Investment Group, collectively operated 44.9% of China’s total power generation installed capacity by the end of 2008, according to the State Electricity Regulatory Commission, and the 28 largest power companies in China collectively operated 68.3%. These power companies and a number of other power producers have substantially greater financial, infrastructure or other resources than we do. We may also face competition from new entrants to the hydropower industry having business objectives similar to ours, including venture capital and private equity funds, leveraged buyout funds, and other operating businesses that may offer more advanced technological capabilities or that have greater financial resources. The ability of our competitors to access resources that we cannot access may prevent us from acquiring additional hydropower projects in strategic locations or from increasing our generating capacity. There is also increasing competition among operating power projects for increases in dispatched output, higher on-grid tariffs and land use rights. If we are unable to compete successfully, our growth opportunities to increase generating capacity may be limited and our revenue and profitability may be adversely affected. In recent years, the ongoing reform of the PRC power

industry has included experimental programs to set on-grid tariffs through competitive bidding among thermal power projects. The tariffs determined by competitive bidding may be lower than the pre-approved tariffs for planned output. In the future, competitive bidding may extend to hydroelectric power projects and further increase price competition among domestic power generation companies. We cannot assure you that increased competition in the future will not have a material adverse effect on our results of operations and growth prospects.

Our business depends on the competitiveness of hydroelectric power generation in relation to other forms of electric power generation. Fewer hydroelectric power projects may be built and less electricity from hydroelectric power sources may be sold if fossil fuel prices decline significantly or if other renewable energy sources become less expensive than hydroelectric power, either of which could have a material adverse effect on our results of operations, financial condition and growth prospects.

          The demand for power projects that produce electricity from renewable energy sources such as water depends in part on the cost of generation from other sources of energy. The terms under which supplies of petroleum, coal, natural gas and other fossil fuels, as well as uranium, can be obtained are key factors in determining the economic interest of using these energy sources rather than renewable energy sources. The principal energy sources in competition with renewable energy sources are petroleum, coal, natural gas and nuclear energy. The record price levels for fossil fuels, in particular, petroleum and natural gas, enhanced the price competitiveness of electricity from renewable energy sources in 2008. A decline in the competitiveness of electricity from renewable energy sources in terms of cost of generation, technological progress in the exploitation of other energy sources, discovery of large new deposits of oil, gas or coal, or the recent decline in prices of those fuels from historically high levels, could weaken demand for electricity generated from renewable energy sources.

          In the renewable energy sector, competition primarily exists with regard to factors such as bidding for available sites, performance of sites in generation, quality of technologies used, price of power produced and scope and quality of services provided, including operation and maintenance services. A decline in the competitiveness of electricity generated from hydroelectric sources in terms of such factors could weaken demand for hydroelectric power. Should hydroelectric power production become uncompetitive with other forms of renewable energy production, or if fossil fuel production becomes more cost competitive, the construction of hydroelectric power projects may slow, thus reducing our pool of potential acquisition targets and limiting our ability to grow our operations.

Certain of our operating subsidiaries are parties to loan agreements that provide for lender rights that may adversely affect our ability to operate our business and restrict our ability to pay dividends and we could be materially adversely affected if our lenders accelerate our debt due to our current or future failures to comply with our loan agreements.

          Pursuant to loan agreements to which certain of our operating subsidiaries are a party, our lenders have rights that include the following: (i) restricting the borrower during the term of the loan from undertaking any shareholding change or restructuring without obtaining prior approval of the lender; (ii) restricting the borrower from undertaking investment, asset transfer or pledging or mortgaging its assets without obtaining prior approval of the lender; (iii) restricting the borrower from paying dividends until the loan is fully repaid; and (iv) placing the borrower’s power generation revenues into escrow until the loan is repaid. These restrictions may prevent us from disposing of or restructuring the ownership of our hydroelectric power projects, and limit the funds available to pay dividends to our shareholders.

          In addition, during the year ended December 31, 2009, our Wuliting and Yingchuan hydroelectric power projects were not in compliance with certain covenants relating to use of loan proceeds contained in the loan agreements to which they are parties. As a result, we consider the aggregate balance in the amount of $32.6 million of these loans to be callable and reclassified the balance from long term loans to current portion of long term loans as of December 31, 2009 and recorded an interest expense in the amount of $0.2 million related to penalty charges for the noncompliance for the year ended December 31, 2009. We could be materially adversely affected if our lenders accelerate our debt due to our current or future failures to comply with our loan agreements.

Planning, construction, acquisition and operation of our hydroelectric power projects require us to obtain and maintain a significant number of permits and approvals from PRC government agencies, some of which we have not obtained or were not transferred to us upon project acquisition. Failure to obtain these permits and approvals could result in significant fines and our loss of the right to develop or operate those assets, which would materially and adversely affect our future growth plans and results of operations.

          The planning, construction, acquisition and operation of small hydroelectric power projects in China requires permits and approvals to be obtained and maintained under different regulatory schemes administered by a wide range of PRC government agencies. Many of the completed projects we have acquired have not historically obtained or have failed to maintain all of those permits required for their operation, and in some cases permits that were obtained have not been transferred to us following our acquisition of the plant. Furthermore, the development rights we have obtained or may obtain are, in most cases, for projects that have not yet received planning and other permits. We believe we have applied for the grant, transfer or renewal, as applicable, of all permits and approvals required to develop and operate our hydroelectric power projects. However, our applications with respect to

one or more projects may be rejected and we may be fined for failure to timely obtain permits and approvals for any of those projects. Failure to obtain missing permits and approvals may in certain cases result in significant fines or the government authorities requiring us to cease operation of our hydroelectric power projects, or unwind the acquisition of the project, any of which would materially and adversely affect our future growth plans and results of operations. Failure to obtain permits and approvals for our development projects may result in our inability to complete and operate the project, or our being subject to penalties and fines upon completion of the project, either of which could materially and adversely affect our future growth and results of operations.

Our operations in China are extensively regulated by the PRC government and our costs associated with compliance with such regulations are substantial. Our results of operations and future growth prospects may be materially and adversely affected by future changes in government regulations and policies.

          All of our hydroelectric power projects in China are subject to extensive regulation by the PRC governmental authorities, including central governmental authorities such as the Ministry of Commerce, the State Administration for Industry and Commerce, the National Development and Reform Commission, the State Electricity Regulatory Commission, the State Administration of Taxation, the Ministry of Environmental Protection, the Ministry of Communications and Transportation, the Ministry of Water Resources, the Ministry of Land and Resources and the Ministry of Housing and Urban-Rural Development, as well as their provincial and local counterparts. Government regulations address virtually all aspects of our operations, including, among others, the following:

	•		planning and construction of new power projects;
	•		the granting of power generation, dispatch and supply permits;
	•		the amount and timing of power generation;
	•		the setting of on-grid tariffs paid to power producers and power tariffs paid by consumers of electricity;
	•		power grid control and power dispatch, including the setting of preferential policies for the dispatch of renewable energy generated power;
	•		allocation of water resources and control of water flows;
	•		environmental protection and safety standards;
	•		acquisitions by foreign investors; and
	•		taxes, in particular Enterprise Income Tax and Value Added Tax.

          Our costs of compliance with, and reliance on, this regulatory system is significant to our business. An increase in the cost of compliance could increase our operating costs and expenses and materially and adversely affect our results of operations. Moreover, policy movements against renewable energy power producers could limit our opportunities for growth and materially and adversely affect our revenues.

The transfer of state-owned assets in China is subject to approval by authorities in charge of state-owned assets administration and supervision. Any failure by us or prior owners of our projects to comply with PRC laws and regulations in respect of the transfer of state-owned assets may result in the imposition of fines or forfeiture of our projects.

          We have acquired a total of thirteen operating hydroelectric power projects and will continue to carry out our acquisition strategy in China. Some of our projects were previously state-owned assets. Under PRC law, the transfer of state-owned assets is subject to strict procedures and approvals. We believe we have complied with all requisite procedures in acquiring state-owned assets, namely our Shapulong hydroelectric power project. However, if a previous transferor of state-owned assets failed to comply with relevant PRC law, the transfer of the state-owned assets may be reversed by the government or fines may be levied. In such circumstances, we will have a legal right to recover our investment in the assets, but we may not be able to recover from the relevant parties, which could result in a loss of power generation plants, loss of revenues and a significant increase in operating costs.

Acquisition of state-owned assets involves a public bidding process and failure to win the bids for our state-owned target companies or equity interests therein may limit our future growth and the control of our existing projects.

          Under PRC law, we are required to bid for the acquisition of state-owned assets that we wish to acquire. We typically negotiate the terms of the sale with the state-owned seller prior to the bidding process, however, we may not be successful in the bid and may fail to obtain the project as a result. To the extent we seek in the future to acquire state-owned assets, we will need to follow this process, and may not be successful in obtaining the target business. To the extent we are unsuccessful in our bids for these state-

owned interests, our future growth and the ability to control our existing projects may be materially and adversely affected.

Certain of our acquisitions have not obtained approval from the local counterparts of the National Development and Reform Commission, which could result in our being required to subsequently obtain the approval, losing preferential tax treatments and other preferential government support, or being ordered to cease operation of the subject hydroelectric power project.

          In accordance with relevant PRC laws and regulations, acquisitions involving foreign investment require approval from the National Development and Reform Commission, or its local counterparts. Certain of our acquisitions of hydroelectric power projects have not procured approvals from the local counterparts of the National Development and Reform Commission, despite having obtained approvals from relevant local counterparts of the Ministry of Commerce. We are in the process of making applications to the relevant local counterparts of the National Development and Reform Commission to obtain these approvals, however, no assurance can be given that we will successfully obtain all approvals from them. We have in some instances approached the local counterparts of the National Development and Reform Commission to apply for these approvals, but have been told by the government agency that it is not necessary for our projects to obtain these approvals. Failure to obtain any of the approvals may have a material adverse effect on our business operations, including our being required to subsequently obtain the approval, losing preferential tax treatments and other preferential government support, or being ordered to cease operation of the subject hydroelectric power project.

We have not obtained formal title certificates to some of the properties we occupy, which may subject us to lawsuits or other actions being taken against us and may result in our loss of the right to operate on these properties and increased operating expenses.

          We have not obtained formal title certificates in respect of the land that we use at the Wuliting, Zhougongyuan and Binglangjiang II hydroelectric power projects with a total area of 711,366.5 m². We are in the process of completing the legal procedures for obtaining the relevant title certificates for the parcels of land and buildings involved and registering them in the name of our operating companies. However, we may not be able to obtain all of the formal title certificates. While we are indemnified by certain predecessors of our operating companies for any losses or expenses that we may suffer from these title defects, our rights as owner or occupier of these properties and buildings may be adversely affected as a result of the absence of formal title certificates and we may be subject to lawsuits or other actions taken against us and may lose the right to continue to operate on these properties.

          In addition, certain of the land use rights currently held by us were obtained by way of allocation by the PRC government without charge. These parcels of land at the Shapulong, Banzhu, Wangkeng, Liyuan, Ruiyang, Yuheng and Yingchuan sites are used as workshops, dams and reservoirs, and have a total area of 7,438,550.0 m ² . The PRC central or local governments may in the future require us to re-obtain such land use rights by way of grant by the government or require us to pay site use fees. In the event that we are required to obtain the land use rights by way of grant, we will be obligated to enter into state-owned land use rights grant contracts with the competent land administration authorities and pay relevant taxes and fees, including but not limited to land premiums in accordance with relevant PRC laws and regulations. These taxes and fees for obtaining land use rights may be significant and if we are required to pay these amounts our operating expenses could be significantly increased.

Certain of our existing hydroelectric power projects have not passed the completion acceptance procedure, which could result in the imposition of fines or the closure of non-permitted hydroelectric power projects.

          In accordance with relevant PRC laws and regulations, hydroelectric power projects are required to pass a completion acceptance procedure. Currently, only seven of our thirteen projects have passed the completion acceptance procedure. Six of our existing hydroelectric power projects have not passed the completion acceptance procedure and they may not successfully pass the completion acceptance procedure in the future. We expect five will complete the procedure in June 2010 and the remaining two will complete the procedure by December 2010. Failure by any of our existing projects to pass completion acceptance procedure could result in the government imposing fines or ordering us to shut down such hydroelectric power projects.

Our executive officers may allocate their time to other businesses thereby causing conflicts of interest in their determination as to how much time to devote to our business and operations, which could materially and adversely affect our ability to manage our operations.

          John D. Kuhns, our Chairman and Chief Executive Officer, Dr. You-Su Lin, the Chairman of Beijing A.B.C. Investment, “James” Tie Li, our Chief Financial Officer and Executive Vice President, Mary E. Fellows, our Executive Vice President and Corporate Secretary and Fang Chen, Vice President and Controller of Beijing A.B.C. Investment, are, to varying degrees, currently pursuing other business interests. This may result in a conflict of interest in allocating their time between our operations and other businesses. If our officers’ other business affairs require them to devote substantial amounts of time to such affairs, it could limit their ability to devote time to our business and operations, which could materially adversely affect our ability to manage our operations.

Our directors and officers may in the future become affiliated with entities engaged in business activities similar to those conducted by us and, accordingly, may have conflicts of interest in determining to which entity a particular business opportunity should be presented, which could limit the business growth opportunities for our company.

          Following a period of one year from the date of our initial public offering, our directors and officers may become affiliated with entities engaged in business activities similar to those conducted by us. Additionally, our directors and officers may become aware of business opportunities which may be appropriate for presentation to us as well as to the other entities with which they are or may be affiliated. Due to these existing affiliations, they may have fiduciary obligations or contractual obligations to present potential business opportunities to those entities prior to presenting them to us. Accordingly, they may have conflicts of interest in determining to which entity a particular business opportunity should be presented. The loss of these business opportunities could limit the growth of our company.

If a poll is not demanded at our shareholder meetings, voting will be by a show of hands and shares will not be proportionately represented. Shareholder resolutions may be passed without the presence of the majority of our shareholders in person or by proxy.

          Voting at any of our shareholder meetings is by a show of hands unless a poll is demanded. A poll may be demanded by the chairman of the meeting or by any three shareholders present in person or by proxy or by any shareholder(s) holding ¹/10 of the total voting rights of shareholders present at the meeting. If a poll is demanded, each shareholder present in person or by proxy will have one vote for each ordinary share registered in his name. If a poll is not demanded, voting will be by show of hands and each shareholder present in person or by proxy will have one vote regardless of the number of shares registered in his name. In the absence of a poll, shares will therefore not be proportionately represented. In addition, the quorum required for our shareholder meetings consists of shareholders who hold at least one-third of our ordinary shares being present at a meeting in person or by proxy. Therefore, subject to the requisite majorities, shareholder resolutions may be passed at our shareholder meetings without the presence of the majority of our shareholders in person or by proxy.

Our independent registered public accounting firm has identified material weaknesses and control deficiencies in our internal control over financial reporting. If we are unable to correct these weaknesses and deficiencies, our ability to accurately and timely report our financial results or prevent fraud may be adversely affected, and investor confidence and the market price of our securities may be adversely affected.

          Prior to our initial public offering, we had been a private company with limited accounting personnel and other resources for addressing our internal control over financial reporting. In connection with the audit of our consolidated and other financial statements included in this annual report, we and our independent registered public accounting firm identified the following control deficiencies, which amounted to “material weaknesses” as defined under the standards established by the Public Company Accounting Oversight Board: (i) insufficient U.S. GAAP qualified accounting and finance personnel and (ii) ineffective process for documenting and applying key accounting policies and procedures.

          To remediate these material weaknesses, we have undertaken to improve our internal controls, including the following:

	•		identifying and hiring additional personnel with U.S. GAAP and SEC reporting experience;
	•		providing training to our finance personnel to improve their knowledge of U.S. GAAP and SEC reporting requirements;
	•		holding regular meetings of the audit committee and resuming regular communication between the committee and our independent registered public accounting firm;
	•		establishing an internal audit function;
	•		establishing anonymous whistleblower systems for reporting violations of our governance policies, including policies regarding internal controls;
	•		putting in place a centralized financial reporting software system in our headquarters, management centers and operating projects; and
	•		engaging external professional consultants to assess the entity level internal controls over financial reporting using the COSO internal control framework. We have also begun to formulate policies relating to internal control over financial reporting, including the preparation of a comprehensive accounting policies and procedures manual, containing, among other things, detailed, expanded closing checklists, to guide our financial personnel in addressing significant accounting issues and assist them in preparing financial statements in compliance with U.S. GAAP and SEC requirements.

          Following our initial public offering, we have become a public company in the United States and are subject to the Sarbanes-Oxley Act of 2002 and applicable rules and regulations thereunder. Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, will require that we include a report of management on our internal control over financial reporting in our annual report on Form 20-F beginning with our annual report for the fiscal year ending December 31, 2010. In addition, our independent registered public accounting firm must report on the effectiveness of our internal control over financial reporting. Our management may conclude that our internal control over financial reporting is not effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent review, may issue a report that is qualified if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us.

          During the course of documenting and testing our internal control procedures in order to satisfy the requirements of Section 404, we may identify additional deficiencies in our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. If we fail to achieve and maintain an effective internal control environment, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could harm our operating results and lead to a decline in the trading price of our securities. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the NYSE, regulatory investigations and civil or criminal sanctions.

Compliance with rules and requirements applicable to public companies may cause us to incur additional costs, and any failure by us to comply with such rules and requirements could negatively affect investor confidence in us and cause the market price of our securities to decline.

          As a new public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act, as well as rules adopted by the SEC and the NYSE, have required changes in the corporate governance practices of public companies. We expect these rules and regulations to increase our legal, accounting and financial compliance costs and to make certain corporate activities more time-consuming and costly. Complying with these rules and requirements may be especially difficult and costly for us because we may have difficulty locating sufficient personnel in China with experience and expertise relating to U.S. GAAP and U.S. public-company reporting requirements, and such personnel may command high salaries. If we cannot employ sufficient personnel to ensure compliance with these rules and regulations, we may need to rely more on outside legal, accounting and financial experts, which may be very costly. In addition, we will incur additional costs associated with our public company reporting requirements. We cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

Risks Relating to Doing Business in China

Adverse changes in PRC economic and political policies could have a material adverse effect on the overall economic growth of China, which could reduce the demand for electricity and materially and adversely affect our business.

          Our operating businesses are based in China and all of our power sales are made in China. As such, our business, financial condition, results of operations and prospects are affected significantly by economic, political and legal developments in China. China economy differs from the economies of most developed countries in many aspects, including:

	•		the level of government involvement;
	•		the level of development;
	•		the growth rate;
	•		the level and control of capital investment;
	•		the control of foreign exchange; and
	•		the allocation of resources.

          While the Chinese economy has grown significantly in the past two decades, the growth has been uneven geographically, among various sectors of the economy and during different periods. We cannot assure you that the Chinese economy will continue to grow or to do so at the pace that has prevailed in recent years, or that if there is growth, such growth will be steady and uniform. In addition, if there is a slowdown, such slowdown could have a negative effect on our business. For example, the Chinese economy

experienced high inflation in the second half of 2007 and the first half of 2008. China’s consumer price index increased by 7.0% during the nine months ended September 30, 2008 as compared to the same period in 2007. To combat inflation and prevent the economy from overheating, the PRC government adopted a number of tightening macroeconomic measures and monetary policies. Due in part to the impact of the global crisis in financial services and credit markets and other factors, the growth rate of China’s gross domestic product as measured against the same period of the previous year decreased to 7.1% in the first half of 2009, down from 10.4% in the first half of 2008. Beginning in September 2008, among other measures, the PRC government began to loosen macroeconomic measures and monetary policies, including reducing interest rates and decreasing the statutory reserve rates for banks. In addition, in November 2008 the PRC government announced an economic stimulus package in the amount of $586 billion. It is uncertain whether the various macroeconomic measures, monetary policies and economic stimulus packages adopted by the PRC government will be effective in restoring or sustaining the fast growth rate of the Chinese economy. In addition, such measures, even if they benefit the overall Chinese economy in the long term, may have a negative effect on us. For example, our financial condition and results of operations may be materially and adversely affected by government control over capital investments.

          Although the Chinese economy has been transitioning from a planned economy to a more market-oriented economy, a substantial portion of the productive assets in China is still owned by the PRC government. The continued control of these assets and other aspects of the national economy by China government could materially and adversely affect our business. The PRC government also exercises significant control over Chinese economic growth through allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Any adverse change in the economic conditions or government policies in China could have a material adverse effect on the overall economic growth and the level of investments and expenditures in China, which in turn could lead to a reduction in demand for electricity and consequently have a material adverse effect on our businesses.

Interpretation of PRC laws and regulations involves uncertainty.

          We are incorporated in Cayman Islands and are subject to laws and regulations applicable to foreign investments in China and, in particular, laws applicable to wholly foreign-owned companies. All of our operating businesses are located within China and are governed by PRC laws and regulations. The PRC legal system is based on written statutes, and prior court decisions can only be used as a reference. Since 1979, the PRC government has promulgated laws and regulations in relation to economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade. However, due to the fact that these laws and regulations have not been fully developed, and because of the limited volume of published cases and the non-binding nature of prior court decisions, interpretations of PRC laws and regulations are not always uniform and involves a relatively high degree of uncertainty. Laws may be changed without being immediately published or may be amended with retroactive effect. Depending on the government agency or how an application or case is presented to such agency, we may receive less favorable interpretations of laws and regulations than certain of our competitors. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention.

The new Antimonopoly Law may subject our future acquisitions to increased scrutiny, which could affect our ability to consummate acquisitions on terms favorable to us or at all.

          The Antimonopoly Law of China became effective on August 1, 2008. The law was enacted in part to guard against and cease monopolistic activities, and to safeguard and promote orderly market competition. In accordance with the law, monopolistic acts shall include monopolistic agreements among business operators, abuse of dominant market positions by business operators and concentration of business operators that eliminates or restricts competition or might be eliminating or restricting competition.

          On August 3, 2008, the State Council promulgated the Regulations on the Thresholds for Reporting of Concentration of Business Operators, or the Reporting Threshold Regulations, which provide specific thresholds for reporting of concentration of business operators. Under the Antimonopoly Law and the Reporting Threshold Regulations, the parties to an acquisition must report to the Ministry of Commerce in advance if in the preceding accounting year the turnover in the aggregate achieved by all the parties to the transaction exceeds RMB10.0 billion ($1.5 billion) worldwide or RMB2.0 billion ($0.3 billion) within China, and the turnover achieved by at least two of them respectively exceeds RMB400.0 million ($58.6 million) within China. However, the Ministry of Commerce has the right to initiate investigation of a transaction not reaching the above-mentioned reporting thresholds if the Ministry of Commerce has evidence that the transaction has or may have the effect of excluding or restricting competition. The antitrust scrutiny procedures and requirements set forth in the Antimonopoly Law and the Reporting Threshold Regulations grant the government extensive authority of evaluation and control over the terms of acquisitions in China by foreign investors, and their implementation involves significant uncertainties and risks. To the extent our future acquisitions meet the threshold requirements set forth in the law and the Reporting Threshold Regulations, or are deemed by the Ministry of Commerce to meet the thresholds, we will be subject to antimonopoly review. The consummation of our future acquisitions could therefore be much more time-consuming and complex, and any required approval processes, including obtaining approval from the Ministry of Commerce, may delay or

prevent the consummation of such acquisitions, and prevent us from attaining our business objectives.

A newly enacted PRC tax law could increase the enterprise income tax rate applicable to our operating businesses in China, which could have a material adverse effect on our results of operations.

          On March 16, 2007, the new PRC Enterprise Income Tax law, or EIT Law, was enacted, which became effective on January 1, 2008 and replaced the previous two separate tax legal regimes for foreign invested enterprises, or FIEs, and Chinese domestic companies. The EIT Law adopts a uniform tax rate of 25% for all enterprises, including FIEs, and revokes many of the previous tax exemption, reduction and preferential treatments which were applicable to FIEs. However, any enterprises that were established before the promulgation of the EIT Law that are entitled to preferential tax treatments for a fixed period will continue to be entitled to such preferential tax treatments until the expiration of such period. If the fixed period has not commenced because of losses, it shall be deemed to commence on January 1, 2008. In addition, certain qualified high-technology enterprises may still benefit from a preferential tax rate of 15% under the EIT Law if they meet the criteria of “high and new technology enterprises strongly supported by the State.” As a result, the applicable tax rate to certain of our existing PRC operating businesses have increased from 15% to the unified tax rate of 25% under the EIT Law.

          Moreover, the EIT Law provides that a withholding income tax rate of 20% will be applicable to dividends payable to foreign investors that are “non-resident enterprises” to the extent such dividends have their source within China unless the jurisdiction of such foreign investor has a tax treaty with China that provides a different withholding arrangement. The implementing regulations to the EIT Law subsequently reduced this withholding income tax rate from 20% to 10%.

We may be deemed a PRC resident enterprise under the EIT Law and be subject to PRC taxation on our worldwide income.

          The EIT Law also provides that enterprises established outside of China whose “de facto management bodies” are located in China are considered “resident enterprises” and are generally subject to the uniform 25% enterprise income tax rate as to their worldwide income. Under the implementation regulations to the EIT Law issued by the State Council, “de facto management body” is defined as a body that has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and treasury, and acquisition and disposition of properties and other assets of an enterprise. At present, the PRC tax authorities have not issued any guidance on the application of the new EIT Law and its Implementation Regulations on non-Chinese enterprises or non-Chinese group enterprises and their controlled entities. As a result, it is unclear what factors will be used by the PRC tax authorities to determine whether we are a “de facto management body” in China. A substantial number of our management personnel are located in the PRC, and all of our revenues arise from our operations in China. However, we do recognize some interest income and other gains from our financing activities outside China. If the PRC tax authorities determine that we are a PRC resident enterprise, we will be subject to PRC tax on our worldwide income at the 25% uniform tax rate, which may have a material adverse effect on our financial condition and results of operations. Notwithstanding the foregoing provision, the new EIT Law also provides that, if a resident enterprise already invests in another resident enterprise, the dividends received by the investing resident enterprise from the invested resident enterprise are exempt from income tax, subject to certain qualifications. Therefore, if we are classified as a resident enterprise, the dividends received from our PRC subsidiaries may be exempt from income tax. However, due to the short history of the EIT Law, it is unclear as to (i) the detailed qualification requirements for such exemption and (ii) whether dividend payments by our PRC subsidiaries to us will meet such qualification requirements, even if we are considered a PRC resident enterprise for tax purposes.

Interest and dividends payable by us to our foreign investors and gain on the sale of our ADSs, warrants or ordinary shares may become subject to withholding taxes under PRC tax laws, which may materially and adversely affect your investment in our securities.

          Under the EIT Law and implementation regulations issued by the State Council, PRC withholding tax at the rate of 10% is applicable to interest and dividends payable to investors that are “non-resident enterprises,” which do not have an establishment or place of business in China, or which have such establishment or place of business but the relevant income is not effectively connected with the establishment or place of business, to the extent such interest or dividends have their sources within China. Similarly, any gain realized on the transfer of ADSs, warrants or ordinary shares by such investors is also subject to 10% PRC withholding tax if such gain is regarded as income derived from sources within China. If we are considered a PRC “resident enterprise,” it is unclear whether the interest or dividends we pay with respect to our securities, or the gain our non-PRC shareholders or ADS or warrant holders may realize from the transfer of our ordinary shares or other securities, would be treated as income derived from sources within China and be subject to PRC tax.

          If we are required under the EIT Law to withhold PRC income tax on interest or dividends payable to our non-PRC shareholders that are “non-resident enterprises,” or if you are required to pay PRC income tax on the transfer of our securities, the value of your investment in our securities may be materially adversely affected.

We rely principally on dividends and other distributions on equity paid by our operating businesses in China, and limitations on their ability to pay dividends to us could have a material adverse effect on our business and results of operations.

          We are a holding company and we rely principally on dividends and other distributions on equity paid by our operating businesses in China for our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders, service any debt we may incur and pay our operating expenses. If our operating businesses incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other distributions to us. We currently expect to permanently reinvest the earnings of our operating businesses in China and have no plan to cause our operating businesses to make a dividend distribution to us.

          As entities established in China, our operating businesses are subject to certain limitations with respect to dividend payments. PRC regulations currently permit payment of dividends only out of accumulated profits as determined in accordance with accounting standards and regulations in China. For each of our operating businesses that is a Sino-foreign joint venture enterprise, it may not distribute its after-tax profits to us if it has not already made contributions to its reserve fund, enterprise development fund and employee bonus and welfare fund at percentages that are decided by its board of directors. For each of our operating businesses that is a wholly foreign-owned enterprise, it may not distribute its after-tax profits to us if it has not already made contributions to its employee bonus and welfare fund at a percentage that is decided by its board of directors and to its reserve fund at a rate of no less than 10% of its net profit. A wholly foreign-owned enterprise is required to continue making contributions to its reserve fund until such fund reaches 50% of its registered capital. These reserve funds may not be distributed as cash dividends. The total amount of our restricted net assets was RMB2,127.5 million ($311.6 million) as of December 31, 2009. In addition, if our operating businesses in China incur further debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other distributions to us. Limitations on the ability of our operating businesses in China to pay dividends to us could adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our businesses, pay dividends, or otherwise fund and conduct our business. Accordingly, if for any of the above or other reasons, we do not receive dividends from our operating businesses in China, our liquidity, financial condition and ability to make dividend distributions to our shareholders will be materially and adversely affected.

Fluctuations in the value of RMB will affect the amount of our non-RMB debt service in RMB terms and affect the value of, and dividends payable on, our ADSs in foreign currency terms.

          The value of RMB depends, to a large extent, on China’s domestic and international economic, financial and political developments and government policies, as well as the currency’s supply and demand in the local and international markets. For over 10 years from 1994, the conversion of RMB into foreign currencies, including the U.S. dollar, was based on exchange rates set and published daily by People’s Bank of China in light of the previous day’s inter-bank foreign exchange market rates in China and the then current exchange rates on the global financial markets. The official exchange rate for the conversion of RMB into the U.S. dollar was largely stable until July 2005. On July 21, 2005, People’s Bank of China revalued RMB by reference to a basket of foreign currencies, including the U.S. dollar. As a result, the value of RMB appreciated by 2% on that day. The China central bank allowed the official RMB exchange rate to float against a basket of foreign currencies, and the RMB has further appreciated by 18.8% against the U.S. dollar as of November 5, 2009. In July 2008, the China central bank established a narrow band within which the RMB could fluctuate against these currencies, the practical effect of which has been to re-peg the RMB to the U.S. dollar. Fluctuation of the value of RMB will affect the amount of our non-RMB debt service in RMB terms since we have to convert RMB into non-RMB currencies to service our foreign debt. Since our income and profits are denominated in RMB, any appreciation of RMB will also increase the value of, and any dividends payable on, our ADSs in foreign currency terms. Conversely, any depreciation of RMB will decrease the value of, and any dividends payable on, our ADSs in foreign currency terms.

Restrictions on currency exchange may limit our ability to receive dividends from our operating businesses in China and their ability to obtain overseas financing.

          Our operating businesses in China may convert a portion of RMB held by them into foreign currencies to meet its foreign currency obligations, including, among others, payments of dividends declared, if any, in respect of our ordinary shares. Under China’s existing foreign exchange regulations, our operating businesses in China are able to pay dividends in foreign currencies without prior approval from the State Administration of Foreign Exchange, by complying with certain procedural requirements. However, we cannot assure you that China government will not take measures in the future to restrict access to foreign currencies for current account transactions, including payment of dividends.

          Foreign exchange transactions for capital account items, such as direct equity investments, loans and repatriation of investments, by our operating businesses in China continue to be subject to significant foreign exchange controls and require the approval of PRC governmental authorities, including the State Administration of Foreign Exchange. In particular, if our operating businesses in China borrow foreign currency-denominated loans from us or other foreign lenders, these loans must be registered with the local offices of the State Administration of Foreign Exchange. These limitations could affect their ability to obtain additional

equity or debt funding that is denominated in foreign currencies.

PRC regulation of direct investment and loans by offshore holding companies to PRC entities may delay or limit our ability to use the proceeds of our initial public offering to make additional capital contributions or loans to our PRC operating businesses.

          Any capital contributions or loans that we, as an offshore company, make to our PRC operating businesses, including from the proceeds of our initial public offering, are subject to PRC regulations. For example, any of our loans to our PRC operating businesses cannot exceed the difference between the total amount of investment our PRC operating businesses are approved to make under relevant PRC laws and their respective registered capital, and must be registered with the local branch of the State Administration of Foreign Exchange as a procedural matter. In addition, our capital contributions to our PRC operating businesses must be approved by the National Development and Reform Commission and the Ministry of Commerce or their local counterpart and registered with the State Administration for Industry and Commerce or its local counterpart. We cannot assure you that we will be able to obtain these approvals on a timely basis, or at all. If we fail to obtain such approvals, our ability to make equity contributions or provide loans to our PRC operating businesses or to fund their operations may be negatively affected, which could adversely affect their liquidity and their ability to fund their working capital and expansion projects and meet their obligations and commitments.

          Furthermore, the State Administration of Foreign Exchange promulgated a new circular in August 2008 with respect to the administration of conversion of foreign exchange capital contribution of foreign invested enterprises into RMB. Pursuant to this new circular, RMB converted from foreign exchange capital contribution can only be used for the activities within the approved business scope of such foreign invested enterprise and cannot be used for domestic equity investment or acquisition unless otherwise allowed by PRC laws or regulations. As a result, we may not be able to increase the capital contribution of our operating subsidiaries and subsequently convert such capital contribution into RMB for equity investment or acquisition in China.

Risks Relating to Our Securities

The trading prices of our ADSs and warrants are likely to be volatile, which could result in substantial losses to investors.

          The trading prices of our ADSs and warrants are likely to be volatile and could fluctuate widely in response to factors beyond our control. The initial public offering price for our units was determined by negotiation between us and the underwriters and the price at which the ADSs and warrants are traded after our initial offering have declined below the initial public offering price. In the past, following periods of volatility in the market price of a company’s securities, shareholders have often instituted securities class action litigation against that company. If we were involved in a class action suit, it could divert the attention of senior management, and, if adversely determined, could have a material adverse effect on our results of operations and financial condition.

          The performance and fluctuation of the market prices of other companies with business operations located mainly in China that have listed their securities in the United States may affect the volatility in the price of and trading volumes for our ADSs and warrants. Recently, a number of PRC-based companies have listed their securities, or are in the process of preparing for listing their securities, on U.S. stock markets. Some of these companies have experienced significant volatility, including significant price declines in connection with their initial public offerings. The trading performances of these PRC-based companies’ securities at the time of or after their offerings may affect the overall investor sentiment towards PRC-based companies listed in the United States and consequently may impact the trading performance of our ADSs and warrants. These broad market and industry factors may significantly affect the market price and volatility of our ADSs and warrants, regardless of our actual operating performance.

          In addition to market and industry factors, the price and trading volume of our ADSs and warrants may be highly volatile for specific business reasons. Factors such as variations in our financial results, announcements of new business initiatives by us or by our competitors, recruitment or departure of key personnel, changes in the estimates of our financial results or changes in the recommendations of any securities analysts electing to follow our securities or the securities of our competitors could cause the market price for our ADSs and warrants to change substantially. Any of these factors may result in large and sudden changes in the trading volume and price for our ADSs and warrants.

The sale or availability for sale of substantial amounts of our ADSs could adversely affect their market price.

          Sales of substantial amounts of our ADSs in the public market, or the perception that these sales could occur, could adversely affect the market price of our ADSs and could materially impair our future ability to raise capital through offerings of our ADSs.

          Currently there are 153,295,516 ordinary shares outstanding. In addition, there are outstanding options and warrants to purchase an aggregate of 57,144,565 ordinary shares, including options and warrants to purchase an aggregate of 48,246,565 ordinary shares immediately exercisable as of the date of this annual report.

All of the ADSs sold in the initial public offering are freely tradable without restriction or further registration under the U.S. Securities Act of 1933, or the Securities Act, unless held by our “affiliates” as that term is defined in Rule 144 under the Securities Act. Subject to the 180-day lock-up restrictions described below and other applicable restrictions and limitations under Rule 144 of the Securities Act of 1933, all of our shares outstanding prior to our initial public offering will be eligible for sale in the public market. In addition, the ordinary shares subject to options and warrants for the purchase of our ordinary  shares will become eligible for sale in the public market to the extent permitted by the provisions of various vesting agreements, the lock-up agreements described below and Rules 144 and 701 under the Securities Act of 1933. If these additional shares are sold, or if it is perceived that they will be sold in the public market, the trading price of our ADSs could decline.

          In connection with our initial public offering, we and our directors, officers and shareholders have agreed, subject to some exceptions, not to sell any ordinary shares or ADSs for 180 days after January 25, 2010, the date of the prospectus for our initial public offering, without the written consent of the underwriters. However, the underwriters may release these securities from these lock-up restrictions at any time. We cannot predict what effect, if any, market sales of securities held by our significant shareholders or any other shareholder or the availability of these securities for future sale will have on the market price of our ADSs.

Future issuances of ordinary shares or ADSs may depress the trading price of our ADSs.

          Any future issuance of equity securities could dilute the interests of our existing shareholders and could substantially decrease the trading price of our ADSs. We may issue equity securities in the future for a number of reasons, including to finance our operations and business strategy (including in connection with acquisitions and other transactions), to adjust our ratio of debt to equity, to satisfy our obligations upon the exercise of outstanding warrants or options or for other reasons.

Our outstanding warrants may materially and adversely affect the market price of our ADSs.

          The units sold in our initial public offering include warrants to purchase 18,000,000 ordinary shares. The potential issuance of additional ordinary shares on exercise of these warrants could materially and adversely affect the market price of our ADSs. This is because exercise of the warrants will increase the number of issued and outstanding ordinary shares and thus may dilute the net tangible book value per ADS. Additionally, the sale or possibility of sale of the ordinary shares underlying the warrants could have an adverse effect on our ability to obtain other financing.

You will not be able to exercise your warrants if we do not have an effective registration statement in place when you desire to do so.

          No warrants will be exercisable, and we will not be obligated to issue ordinary shares upon exercise of warrants by a holder unless, at the time of such exercise, we have a registration statement under the Securities Act in effect covering the ordinary shares issuable upon the exercise of the warrants and a current prospectus relating to ordinary shares is available. We have agreed to use our best efforts to have a registration statement in effect covering ordinary shares issuable upon exercise of the warrants from the date the warrants become exercisable and to maintain a current prospectus relating to ordinary shares until the warrants expire or are redeemed. However, we cannot assure you that we will be able to do so. Additionally, we have no obligation to settle the warrants for cash in the absence of an effective registration statement or under any other circumstances. The warrants may be deprived of any value, the market for the warrants may be limited, the holders of warrants may not be able to exercise their warrants if there is no registration statement in effect covering the ordinary shares issuable upon the exercise of the warrants, or the prospectus relating to the ordinary shares issuable upon the exercise of the warrants is not current and the warrants may expire worthless. As a result, because the warrants may expire worthless, purchasers of our units could effectively be paying the purchase price solely for the ADSs underlying the units.

Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings.

          If we offer holders of our shares any rights to subscribe for additional shares or any other rights, the depositary may make these rights available to you if it is lawful and reasonably practicable. However, the depositary may allow rights that are not distributed or sold to lapse. In that case, you will receive no value for them. In addition, U.S. securities laws may restrict the sale, deposit, cancellation and transfer of the ADSs issued after exercise of rights. Under the deposit agreement, the depositary will not distribute rights to holders of ADSs unless the distribution and sale of rights and the securities to which these rights relate are either

exempt from registration under the Securities Act with respect to holders of ADSs, or are registered under the provisions of the Securities Act. We can give no assurance that we can establish an exemption from registration under the Securities Act, and we are under no obligation to file a registration statement with respect to these rights or underlying securities or to endeavor to have a registration statement declared effective. Accordingly, you may be unable to participate in our rights offerings and may experience dilution of your holdings as a result.

A significant percentage of our outstanding ordinary shares are held by a small number of our existing shareholders, and these shareholders may have significantly greater influence on us and our corporate actions by nature of the size of their shareholdings relative to our public shareholders.

          Vicis Capital Master Fund owns 31.9% and CPI Ballpark Investments Ltd. and Blue Ridge Investment, LLC, both of which are subsidiaries of Bank of America Corporation, will own an aggregate of 25.2% of our voting shares. Each of these shareholders is expected to be an affiliate within the meaning of the Securities Act, due to the size of their respective shareholdings in us. Vicis Master Fund currently has one board representative on our seven director board. Accordingly, these shareholders have had, and may continue to have, significant influence in determining the outcome of any corporate transaction or other matter submitted to the shareholders for approval, including mergers, consolidations and the sale of all or substantially all of our assets, election of directors and other significant corporate actions.

Anti-takeover provisions in our charter documents may discourage a third party from acquiring us, which could limit our shareholders’ opportunities to sell their shares at a premium.

          Our Amended and Restated Memorandum and Articles of Association include provisions that could limit the ability of others to acquire control of us, modify our structure or cause us to engage in a change-of-control transaction. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of us in a tender offer or similar transaction.

          For example, our board of directors will have the authority, without further action by our shareholders, to issue new preferred shares in one or more tranches, which may have powers and rights, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, greater than the rights associated with our ordinary shares. These new preferred shares could thus be issued quickly, and could have terms calculated to delay or prevent a change in control or make removal of management more difficult. In addition, if our board of directors issues new preferred shares, the market price of our ADSs or warrants may fall and the voting and other rights of the holders of our ordinary shares may be adversely affected.

We are a Cayman Islands company and, because judicial precedent regarding the rights of shareholders is more limited under Cayman Islands law than under U.S. law and it is difficult to enforce certain judgments, you may have less protection of your shareholder rights than you would under U.S. law.

          Our corporate affairs are governed by our Amended and Restated Memorandum and Articles of Association, the Cayman Islands Companies Law and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, which has persuasive, but not binding, authority on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States. In addition, some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands.

          The Cayman Islands courts are unlikely:

	•		to recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States; or
	•		to entertain original actions brought against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States.

          There is no statutory recognition in the Cayman Islands of judgments obtained in the United States, although the Cayman Islands will generally recognize as a valid judgment, a final and conclusive judgment in personam obtained in the federal or state courts in the United States under which a sum of money is payable, other than a sum of money payable in respect of multiple damages, taxes or other charges of a like nature or in respect of a fine or other penalty, and would give a judgment based thereon provided that (i) such courts had proper jurisdiction over the parties subject to such judgment; (ii) such courts did not contravene the rules of natural justice of the Cayman Islands; (iii) such judgment was not obtained by fraud; (iv) the enforcement of the judgment would not be contrary to the public policy of the Cayman Islands; (v) no new admissible evidence relevant to the action is submitted prior to the rendering of the judgment by the courts of the Cayman Islands; and (vi) there is due compliance with the correct procedures under the laws of the Cayman Islands.

You will have limited ability to bring an action in the Cayman Islands or in China against us or against our directors and officers, or to enforce a judgment against us or them, because we are incorporated in the Cayman Islands and because we conduct a majority of our operations in China.

          We are incorporated in the Cayman Islands, and conduct substantially all of our operations in China. Most of our directors and officers reside outside the United States and substantially all of the assets of those persons are located outside the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the Cayman Islands or in China in the event that you believe that your rights have been infringed under the applicable securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of China may render you unable to enforce a judgment against our assets or the assets of our directors and officers.

          Unlike many jurisdictions in the United States, Cayman Islands law does not specifically provide for shareholder appraisal rights on a merger or consolidation of a company where the shares of the company are listed on a recognized stock exchange or inter-dealer quotation system. This may make it more difficult for you to assess the value of any consideration you may receive in a merger or consolidation or to require that the offer or give you additional consideration if you believe the consideration offered is insufficient.

          Shareholders of Cayman Islands exempted companies such as ourselves have no general rights under Cayman Islands law to inspect corporate records and accounts or to obtain copies of lists of shareholders of these companies. Our directors have discretion under our Amended and Restated Articles of Association to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.

          As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a U.S. company.

Your ability to protect your rights as shareholders through the U.S. federal courts may be limited because we are incorporated under Cayman Islands law.

          Cayman Islands companies may not have standing to initiate a derivative action in a federal court of the United States. As a result, your ability to protect your interests if you are harmed in a manner that would otherwise enable you to sue in a U.S. federal court may be limited.

The voting rights of holders of ADSs must be exercised in accordance with the terms of the deposit agreement, the ADRs, and the procedures established by the depositary. The process of voting through the depositary may involve delays that limit the time available to you to consider proposed shareholders’ actions and also may restrict your ability to subsequently revise your voting instructions.

          Holders of our ADSs may only exercise their voting rights with respect to the underlying shares in accordance with the provisions of the deposit agreement. Upon receipt of voting instructions from a holder of ADSs in the manner set forth in the deposit agreement, the depositary will endeavor to vote the underlying shares in accordance with these instructions. Under our Amended and Restated Memorandum and Articles of Association and Cayman Islands law, the minimum notice period required for convening a general meeting is 21 days. When a general meeting is convened, you may not receive sufficient notice of a shareholders’ meeting to

permit you to withdraw your shares to allow you to cast your vote with respect to any specific matter at the meeting. In addition, the depositary and its agents may not be able to send voting instructions to you to give your voting instructions in a timely manner. We will make all reasonable efforts to cause the depositary to send voting information to you in a timely manner, but we cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your shares. Furthermore, the depositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, you may not be able to exercise your right to vote and you may lack recourse if your shares are not voted as you requested.

Except in limited circumstances, the depositary for our ADSs will give us a discretionary proxy to vote our ordinary shares underlying your ADSs if you do not vote at shareholders’ meetings, which could adversely affect your interests.

          Under the deposit agreement for the ADSs, the depositary will give us a discretionary proxy to vote our shares underlying your ADSs at shareholders’ meetings if it does not receive your voting instructions, unless:

	•		we have failed to timely provide the depositary with our notice of meeting and related voting materials;
	•		we have instructed the depositary that we do not wish a discretionary proxy to be given;
	•		we have informed the depositary that there is substantial opposition as to a matter to be voted on at the meeting;
	•		a matter to be voted on at the meeting would have a material adverse impact on shareholders.

          The effect of this discretionary proxy is that we will be able to control the voting of the shares underlying your ADSs if you fail to instruct the depository in time, absent the situations described above, and it may make it more difficult for shareholders to influence the management of our company. Holders of our shares are not subject to this discretionary proxy.

You may not receive distributions on our shares or any value for them if it is illegal or impractical for us to make them available to you.

          The depositary of our ADSs has agreed to pay you the cash dividends or other distributions it or the custodian for our ADSs receives on our shares or other deposited securities after deducting its fees and expenses.

          You will receive these distributions in proportion to the number of our shares your ADSs represent. However, the depositary is not responsible if it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act but that are not properly registered or distributed pursuant to an applicable exemption from registration. The depositary is not responsible for making a distribution available to any holders of ADSs if any government approval or registration is required for such distribution. We have no obligation to take any other action to permit the distribution of our ADSs, shares, rights or anything else to holders of our ADSs. This means that you may not receive the distributions we make on our shares or any value for them if it is illegal or impractical for us to make them available to you. These restrictions may have a material and adverse effect on the value of your ADSs.

You may be subject to limitations on transfers of your ADSs.

          Your ADSs, represented by ADRs, are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may close its books from time to time for a number of reasons, including in connection with corporate events such as a rights offering, during which time the depositary needs to maintain an exact number of ADS holders on its books for a specified period. The depositary may also close its books in emergencies, and on weekends and public holidays. The depositary may refuse to deliver, transfer or register transfers of our ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary thinks it is necessary or advisable to do so in connection with the performance of its duty under the deposit agreement, including due to any requirement of law or any government or governmental body, or under any provision of the deposit agreement.

We may be a passive foreign investment company, or PFIC, which could lead to additional taxes for U.S. holders of our warrants, ADSs or ordinary shares.

          We do not expect to be, for U.S. federal income tax purposes, a passive foreign investment company, or a PFIC, which is a

foreign company for which, in any given taxable year, either at least 75% of its gross income is passive income which generally includes dividends, interest, royalties, rents and gains from commodities and securities transactions or at least 50% of its assets produce or are held to produce passive income, for our 2009 or 2010 taxable years and we expect to operate in such a manner so as not to become a PFIC for any future taxable year. However, because the determination of PFIC status for any taxable year cannot be made until after the close of such year and requires extensive factual investigation, including ascertaining the fair market value of our assets on a quarterly basis and determining whether the gross income that we earn is or is not passive income, we cannot assure you that we will not become a PFIC for our 2010 taxable year or any future taxable year. If we are or become a PFIC, you could be subject to additional U.S. federal income taxes on gain recognized with respect to the warrants, ADSs or ordinary shares and on certain distributions, plus an interest charge on certain taxes treated as having been deferred under the PFIC rules. Non-corporate U.S. holders will not be eligible for reduced rates of taxation on any dividends received from us if we are a PFIC in the taxable year in which such dividends are paid or in the preceding taxable year.

ITEM 4. INFORMATION ON THE COMPANY

A. History and Development of the Company

          We were formed in July 2006 as an exempted company under the laws of the Cayman Islands to serve as a vehicle for the acquisition of hydroelectric assets in China. At the time of our formation we considered, but did not pursue, operating as a publicly traded special purpose acquisition company. We did not have any operating business until the completion of our first acquisition in April 2007. Key events in our corporate development since our formation include the following. Please note that U.S. dollar translations provided below are derived from our consolidated financial statements.

	•		in November 2006, we raised $50.0 million through the sale of convertible notes in a private placement to institutional investors;
	•		in April 2007, we established a wholly owned subsidiary, Beijing A.B.C. Investment Consulting Co., Ltd. in Beijing, China, which provides management and other consulting services to our hydroelectric power projects in China;
	•		in April 2007, we acquired Yunnan Huabang Electric Power Development Co., Ltd., which owns and operates the Binglangjiang I hydroelectric power project, with an installed capacity of 21.0 MW, and which has the right to complete construction of, and operate, the Binglangjiang II hydroelectric power project, with a design capacity of 20.0 MW, both in Yingjiang County, Dehong Prefecture, Yunnan province, for a total consideration of RMB50.0 million ($6.5 million). In addition, we made a cash advance to the company of RMB125.0 million ($16.2 million) in April 2007 prior to the completion of the acquisition. Binglangjiang is considered our predecessor company for SEC reporting purposes, as we acquired substantially all of the business of Binglangjiang and our own operations prior to that acquisition were insignificant compared to the operations of Binglangjiang;
	•		in May 2007, we acquired, through an asset purchase, the Liyuan hydroelectric power project, a completed project with an installed capacity of 12.0 MW located in Cangxi County, Guangyuan City, Sichuan province, from Cangxi County Jianghe Hydroelectric Power Development Co., Ltd., for a purchase price of RMB77.0 million ($10.0 million) in cash. We established at that time Sichuan Huabang Hydroelectric Development Co., Ltd. to own and operate the plant;
	•		in December 2007, we acquired a 50.0% equity interest in Yunhe County Shapulong Hydropower Generation Co., Ltd., which owns and operates the Shapulong hydroelectric power project, with an installed capacity of 25.0 MW, located in Yunhe County, Lishui City, Zhejiang province, for a purchase price of RMB33.0 million ($4.5 million) in cash. In August 2009, we acquired a 13.0% equity interest in the company for a purchase price of RMB8.6 million ($1.3 million) and a further 37.0% equity interest in the company for a purchase price of RMB21.0 million ($3.1 million);
	•		in January 2008, we raised $150.0 million in a private placement of Series A convertible redeemable preferred shares to institutional investors;
	•		in January 2008, we acquired Zhejiang Province Jingning Yingchuan Hydroelectric Development Co., Ltd., which owns and operates the Yingchuan hydroelectric power project, with an installed capacity of 40.0 MW, located in Jingning County, Lishui City, Zhejiang province, for a total consideration of RMB304.0 million ($42.3 million), which was comprised of a cash purchase price of RMB291.4 million ($40.6 million) and a payment of RMB12.6 million ($1.8 million) to settle all of the liabilities of the company;
	•		in January 2008, we acquired Qingtian Wuliting Hydroelectric Development Co., Ltd., which owns and operates the Wuliting hydroelectric power project, with an installed capacity of 42.0 MW, located in Qingtian County, Lishui City, Zhejiang province, for a purchase price of RMB342.1 million ($47.6 million), which was comprised of a cash purchase price of RMB206.9 million ($28.8 million) and a payment of RMB135.3 million ($18.8 million) to settle all of the liabilities of the company;

	•		in January 2008, we acquired Suichang County Jiulongshan Hydroelectric Development Co., Ltd., which owns the Zhougongyuan hydroelectric power project, with a design capacity of 53.6 MW, located in Suichang County, Lishui City, Zhejiang province, for a purchase price of RMB157.3 million ($21.9 million) in cash. We were obligated to make a cash injection into the company of RMB250.0 million ($34.8 million) to complete the construction of the project under the original agreement;
	•		in July 2008, we raised $101.0 million in a private placement of Series B convertible redeemable preferred shares to institutional investors;
	•		in August 2008, we raised $28.0 million in a private placement of Series B convertible redeemable preferred shares to institutional investors;
	•		in October 2008, we acquired a 90.0% equity interest in Sanming Zhongyin Banzhu Hydroelectric Co., Ltd., which owns and operates the Banzhu hydroelectric power project, with an installed capacity of 45.0 MW, located in Sanming City, Fujian province, for a purchase price of RMB134.2 million ($19.6 million) in cash. We were obligated to make a capital injection of RMB104.9 million ($15.4 million) to the company to finance its future operations after the acquisition, of which RMB21.2 million ($3.1 million) was made in March 2009, and the remaining capital injection of RMB83.7 million ($12.3 million) will be made in 2010. In addition, pursuant to a supplemental agreement with the shareholders at the time, Sanming Ruifeng Hydropower Investment Co., Ltd. and Yong’an Ruifeng Hydroelectric Ltd. were entitled to receive the RMB59.2 million ($8.7 million) of current assets, including cash and cash equivalents, accounts receivable and amounts due from related parties of Banzhu as of the acquisition date. Subsequently, in January 2009, Sanming Ruifeng Hydropower Investment Co., Ltd. agreed to forego RMB7.0 million ($1.0 million) of the current assets that Sanming Ruifeng Hydropower Investment Co., Ltd. is entitled to receive. In March 2009, we acquired the remaining 10.0% equity interest in this company for a purchase price of RMB17.0 million ($2.5 million) in cash;
	•		in October 2008, we acquired a 90.0% equity interest in Pingnan County Wangkeng Hydroelectric Co., Ltd., which owns and operates the Wangkeng hydroelectric power project, with an installed capacity of 40.0 MW, located in Pingnan County, Ningde City, Fujian province, for a purchase price of RMB220.5 million ($32.3 million) in cash;
	•		in October 2008, we acquired Pingnan County Yuanping Hydroelectric Co., Ltd., which owns and operates the Yuanping hydroelectric power project, with an installed capacity of 16.0 MW, located in Pingnan County, Ningde City, Fujian province, for a purchase price of RMB58.0 million ($8.5 million) in cash;
	•		in October 2008, we acquired Pingnan County Yuheng Hydropower Co., Ltd., which owns and operates the Yuheng hydroelectric power project, with an installed capacity of 30.0 MW, located in Pingnan County, Ningde City, Fujian province, for a purchase price of RMB121.0 million ($17.7 million) in cash;
	•		in March 2009, Pingnan County Wangkeng Hydroelectric Co., Ltd, signed a RMB150.0 million ($22.0 million) loan agreement with Industrial Bank Co., Ltd., Ningde Branch to refinance the Wangkeng hydroelectric power project;
	•		in March 2009, Qingtian Wuliting Hydroelectric Development Co., Ltd, signed a RMB219.6 million ($32.2 million) loan agreement with Bank of China, Lishui City Dayang Sub-branch to refinance the Wuliting hydroelectric power project;
	•		in June 2009, Sanming Zhongyin Banzhu Hydroelectric Co., Ltd, signed a RMB294.9 million ($43.2 million) loan agreement with the Bank of China, Fujian Branch to refinance the Banzhu hydroelectric power project;
	•		in June 2009, Suichang County Jiulongshan Hydroelectric Development Co., Ltd. signed a RMB216.0 million ($31.6 million) loan agreement and a RMB9.0 million ($1.3 million) loan agreement with the Agricultural Bank of China, Lishui Branch to refinance the Zhougongyuan hydroelectric power project;
	•		in July 2009, we signed a memorandum of understandings with the Bank of China, Fujian Branch, pursuant to which the bank will provide 50.0% of financing required for the acquisition or refinancing of any hydroelectric power projects acquired by us through an Investment Holding Company to be established by us in Fujian province;
	•		in August 2009, we acquired Longquan Ruiyang Cascade II Hydroelectric Co., Ltd., which owns and operates the Ruiyang hydroelectric power project, with an installed capacity of 32.0 MW, located in Xiaomei Township, Longquan City, Zhejiang province, for a purchase price of RMB160.0 million ($23.4 million) in cash;
	•		in September 2009, we signed a non-binding framework agreement with Sichuan Huashui Power Construction Engineering Co., Ltd. to jointly develop 40 small hydroelectric power projects in Sichuan province totaling approximately 1,250.0 MW of design installed capacity, for which Sichuan Huashui Power construction Engineering Co., Ltd. has the development right. We have subsequently determined not to pursue these projects.

	•		in October 2009, we signed a capital increase agreement with Henan Lan Tian Group Co., Ltd. to subscribe for a 79.0% equity interest in Henan Wuyue Storage Power Generation Co., Ltd., which owns the right to develop a 1,000.0 MW pumped storage project, located in Yinpeng Township, Guangshan County, Xinyang City, Henan province, for a purchase price of RMB162.5 million ($23.8 million) in cash. The completion of the capital increase transaction is pending government approval;
	•		in October 2009, we raised $20.0 million in a private placement of Series C convertible redeemable preferred shares to an institutional investor;
	•		in December 2009, we transferred one hydroelectric power project from Suichang County Jiulongshan Hydroelectric Development Co., Ltd., to the newly established Suichang County Zhougongyuan Hydroelectric Development Co., Ltd. Both Suichang County Jiulongshan Hydroelectric Development Co., Ltd. and Suichang County Zhougongyuan Hydroelectric Development Co., Ltd. are wholly owned by us; and
	•		in January 2010, we established a wholly owned subsidiary, Fujian Huabang Hydroelectric Investment Co., Ltd.
	•		in January 2010, we completed our initial public offering and received net proceeds of approximately $74.8 million, and our ADSs and warrants started trading on the NYSE under the symbols “CHC” and “CHCWS”, respectively.
	•		In February 2010, we received a Loan Framework Agreement from the Bank of China’s Fujian Branch pursuant to which the bank approved our wholly owned subsidiary, Fujian Huabang Hydroelectricity Investment Co., as a borrower of up to an aggregate of RMB 3 billion ( $440 million) for the acquisition of hydroelectric projects. Each acquisition loan will be subject to individual approval by the bank and to definitive documentation (which will include the term and interest rate thereof). The Loan Framework Agreement represents the bank’s form of internal commitment for the loan facility.
	•		In March 2010, we acquired Husahe, a 18.7 MW operating project in Yunnan province in the PRC for a purchase price of RMB106 million ($15.5 million), financed partially through cash on hand and through the assumption or refinancing of existing non-recourse debt.
	•		In April 2010, we signed a definitive agreement to acquire Xiaopengzu, a 44 MW operating hydroelectric project in Yunnan province in the PRC for a purchase price of RMB240.0 million ($35.1 million).
	•		In April 2010, we signed two definitive agreements to acquire three Minrui operating projects, totaling 55.5 MW in installed generating capacity, for a purchase price of RMB 96.3 million ($14.1 million).

Our Offices

          Our registered office is located at the offices of Appleby Trust (Cayman) Ltd., Clifton House, 75 Fort Street, P.O. Box 1350, George Town, Grand Cayman, KY1-1108. Our executive offices are located at 25B, New Poly Plaza, No. 1 North Chaoyangmen Street, Dongcheng District, Beijing, PRC 10010 and our telephone number at such location is (86-10) 6492-8483. Our website is www.chinahydroelectric.com. The information contained on our website does not form part of this annual report. Our agent for service of process in the United States is “James” Tie Li, Chief Financial Officer and Executive Vice President, China Hydroelectric Corporation, at 420 Lexington Avenue, Suite 860, New York, NY 10170 and his telephone number at such location is (1-646) 467-9810.

B. Business overview

Overview

          We are a fast-growing owner and operator of small hydroelectric power projects in China, led by an international management team. We were formed in July 2006 to acquire existing small hydroelectric assets in China and aim to become the PRC’s largest independent small hydroelectric power producer. Our primary business is to identify, evaluate, acquire, develop, construct and finance hydroelectric power projects in China. In addition, we recently expanded our operations through the acquisition, pending government approval, of development rights to a 1,000.0 MW pumped storage hydroelectric power project.

Our revenues to date have derived from the sale of electricity generated by our small hydroelectric power projects to local power grids, while our costs of operations relate to the operation of our hydroelectric power projects, as well as the cost of financing our acquisition of these hydroelectric power projects and necessary capital contributions. The map below sets out the locations and installed capacities of our hydroelectric power projects in operation and design capacities of hydroelectric power projects under construction.

          We wholly own twelve operating hydroelectric power projects and have a controlling interest in one operating hydroelectric power project. Our operating hydroelectric power projects are located in four provinces in China: Zhejiang, Fujian, Yunnan and Sichuan.

          We acquired all of our existing hydroelectric power projects from other developers and operators beginning in 2007. We intend to continue our expansion by acquiring, operating and developing a diversified portfolio of additional small hydroelectric power projects in targeted locations in China. We believe our experience and capabilities gained in the acquisition, development and operation of small hydroelectric power project in China will enable us to take full advantage of the opportunities present in the PRC hydropower market. Installed capacity at our projects reached 58.0 MW at December 31, 2007, 271.0 MW at December 31, 2008, 376.6 MW at December 31, 2009 and 396.0 MW as of the date of this annual report.

Our Competitive Strengths

Focused acquirer, operator and developer of hydroelectric power projects in a low-cost and fast-growing renewable energy market

          We focus on the acquisition, operation and development of small hydroelectric power projects in China. We have recently expanded our operations through the acquisition, pending government approval, of development rights to a 1,000.0 MW pumped storage hydroelectric power project. Given the PRC’s status as the world’s largest generator of hydropower, government support for hydropower and cost pressure from high fossil fuel prices, we believe the opportunity to realize returns in the PRC hydroelectric power sector will continue to increase in the near term. Our senior management, engineering, finance, legal and support teams have extensive experience in the hydroelectric power industry. We seek to generate and improve returns on investment through leveraging our expertise in identifying, assessing, acquiring, developing, obtaining approvals for and operating hydroelectric power projects. Hydropower in China is a clean renewable energy source with relatively low initial capital expenditures, low operating costs and long asset lives. Our management believes the initial capital investment per hydropower MW is currently significantly lower in China than in the United States and Europe, due largely to the low cost and high quality supply of raw materials, construction services, power generation equipment and labor in China. The PRC hydroelectric power industry further benefits from policy support contained in the Renewable Energy Law, the Catalogue of Foreign Investment, the Eleventh Five-Year Renewable Energy Plan and other laws and regulations. Hydroelectricity is a priority for China in developing its power supply, and foreign investment in the construction and operation of hydroelectric power projects is encouraged. These supports, combined with the fragmented nature of the small hydropower sector in China, present significant opportunities for an internationally funded expert acquirer, developer and operator such as our company to realize shareholder value through consolidation and efficient operation of quality target assets.

Superior access to acquisition opportunities

          We believe sellers of hydroelectric power projects in China prefer a purchaser with industry expertise, ready financing and the ability to execute acquisitions quickly. We have demonstrated these strengths by identifying, reviewing, negotiating and signing acquisitions of thirteen hydroelectric power projects since our inception. Our acquisitions have been from government owned sellers, who face pressure to privatize their assets, and from poorly capitalized private operators who lack access to financing. We believe we are the only internationally financed venture operating on this scale and focused on hydroelectric power in China. We believe our industry experts, who are well known among the owners, operators and regulators of hydroelectric power projects, and our track record in the PRC hydropower market have created recognition of our company as a well-funded, knowledgeable, and dependable purchaser in the market. We believe this has enabled us to source quality targets ahead of other potential buyers, with asset owners now approaching us to offer their assets for sale. We have established a robust target pipeline of approximately 2,000 MW total installed capacity that we are considering for acquisition.

Experienced management team

          We believe our management team provides our company a significant advantage over our competitors in acquiring and operating hydroelectric power projects. Our Chairman and Chief Executive Officer John D. Kuhns established Catalyst Energy, North America’s largest hydroelectric power provider and one of the first independent power producers, in the 1980s, and has been active in

the PRC hydropower market since the 1990s. Our director and Chairman of our Beijing management subsidiary, Beijing A.B.C. Investment, Dr. You-Su Lin has over 14 years experience in the PRC hydroelectric power industry. Our engineering, operational and finance teams have rich experience in and knowledge of the hydroelectric power industry and strong expertise in investment and financing. They have spearheaded our efforts to identify and close acquisition opportunities and their expertise has allowed us to rapidly assess multiple projects simultaneously. We believe our management team possesses in-depth comprehension of relevant PRC laws and an excellent relationship with the hydropower industry regulators, all of which help to ease the acquisition, construction and operation approval process. We also retain key management at our acquired hydroelectric power projects in order to sustain relationships with the power grids, enhance our understanding of local conditions and maintain operational continuity. Our experienced in-house engineering team actively participates in the operation of our acquired assets and contributes to all major maintenance, technical upgrade and expansion of projects, as well as hydrology management.

Geographical diversification combined with regional project clustering reduces operational risk and enhances operational efficiencies

          Our hydroelectric power projects in operation and under construction are located on a geographically diverse collection of waterways. We believe each of these waterways has historically documented hydrological resources to make it a strong producer of hydroelectric power. We will continue to focus on the acquisition of hydroelectric power projects in diverse regions with favorable hydrology. As hydropower production is significantly impacted by weather, geographic diversification protects our business from the effects of unfavorable weather patterns in any one region. Geographic diversification also mitigates the potential risks from earthquakes, floods and other natural disasters in a region.

          We believe that our ownership of multiple hydroelectric power projects on the same waterway serves to enhance our operational efficiencies. The clustering of projects allows better load balancing among our projects through distribution of waterflows, and thus power generation, to projects with excess capacity and optimal tariffs. Clustering also lowers our operation costs as one regional management, engineering and operations team can operate multiple plants.

Ability to access and effectively deploy capital

          We believe our large and diverse capital base and skilled management team give us the ability to quickly respond to and secure attractive acquisition opportunities. Our financing capabilities are demonstrated by our success in raising over $447 million of international equity or equity-linked capital since our inception. As of December 31, 2009, we have also assumed borrowings of RMB1,614 million ($236.4 million). Our access to local bank loan facilities via our PRC subsidiaries reduces our cost of capital and optimizes our capital structure, in particular as hydropower is a government-supported sector in China that is entitled to preferential lending policies. We maintain a large pipeline of projects that we are considering for acquisition, from fully approved projects which we have identified as promising up to completed projects or projects under construction, to ensure opportunities for steady future investment of our capital. No current obligation exists to purchase any of these pipeline projects.

Business Strategy

Maintain acquisition pace and increase project construction

          Our goal is to become the largest PRC owner and operator of small hydroelectric power projects. We plan to continue expanding our asset portfolio in order to realize operational efficiencies and increase our return on investment. We believe small hydroelectric power assets in China will continue to be available for acquisition given the number of plants in operation and the highly fragmented nature of the industry, coupled with the pressures on many current owners to sell. We will continue to fill our acquisition pipeline with targets we believe have the potential to meet our investment criteria. However, no current obligation exists to purchase any of these pipeline projects. We believe our planned expansion is supported by increasing domestic demand for electricity and the availability of acquisition targets. Moreover, we intend to maintain our acquisition pace to solidify our first mover advantage in the market. By achieving scale in our operations, especially along single waterways, we seek to lower our operating costs by spreading our local management teams across multiple plants and maximizing our access to waterflows and thus generation capacity.

          We primarily target small hydroelectric power projects, being hydroelectric power projects of 50 MW or less in capacity, in regions with high hydroelectric power tariffs or the opportunity for increasing hydroelectric power tariffs. We initially focused on completed projects, because they provide us a means to grow capacity and cash flows immediately. Completed projects that have the potential for capacity expansion are also attractive to us, as they allow us to add capacity and increase our cash flows at low incremental costs. We have started acquiring projects under construction and development rights to greenfield projects, which allow us to leverage our management team’s expertise in the sourcing, permitting and managing the construction of hydroelectric power projects. We expect to continue to take controlling positions in projects, which allows us to run their operations and thereby leverage our management expertise. However, our strategy to maintain our acquisition pace is limited by our ability to identify suitable acquisition opportunities and to obtain financing, see “Risk Factors — Risks Relating to our Company and the PRC Hydropower Industry — We may encounter difficulties in identifying suitable acquisition opportunities, which would result in us being dependent

upon a limited number of hydroelectric power projects and having limited revenue growth potential,” and “Risk Factors — Risks Relating to our Company and the PRC Hydropower Industry — We will need substantial additional funding to accomplish our growth strategy and may be unable to raise capital on terms favorable to us or at all, which could increase our financing costs, dilute your ownership interests, affect our business operations or force us to delay, reduce or abandon our growth strategy.”

Optimize capital structure

          We plan to improve our capital structure by increasing our financial leverage through diverse fundraising channels, with the goal of increasing our debt-to-equity ratio while lowering our cost of capital. In particular, we are in discussions with both international and PRC banks to obtain secured and unsecured debt financing for our projects. Financing under discussion includes substantial credit facilities to be provided to our company or Beijing A.B.C. Investment, rather than the project-specific borrowing currently undertaken by our individual subsidiaries. We expect such facilities to provide lower interest rates and terms superior to the borrowings undertaken at operating level. We have recently renegotiated or refinanced approximately RMB833 million ($122.0 million) of our existing long-term loans with reduced interest rates and longer tenures, thereby lowering our borrowing costs and interest expense. We have also signed a loan framework agreement with the Bank of China’s Fujian Branch for the borrowing of up to an aggregate of RMB3 billion ($440 million) subject to the bank’s approval of each acquisition loan. We believe that the availability of hydroelectric assets as collateral, our relatively stable cash flow and our low operating costs improve our access to debt financing. We anticipate that our broad access to both international and PRC lenders will reduce our cost of capital, as we will be able to borrow from whichever market offers superior terms, thereby allowing us to maximize returns to shareholders. However, the implementation of our strategy to improve our capital structure is dependent on our ability to obtain financing. See “Risk Factors— Risks Relating to our Company and the PRC Hydropower Industry — We will need substantial additional funding to accomplish our growth strategy and may be unable to raise capital on terms favorable to us or at all, which could increase our financing costs, dilute your ownership interests, affect our business operations or force us to delay, reduce or abandon our growth strategy.”

Continue geographic diversification and consolidation of hydropower capacity in key regions

          We seek to expand our portfolio of hydroelectric power projects in regions where we believe demand for power, tariff levels and hydrological conditions present opportunities for an attractive rate of return on capital. By diversifying the locations in which we operate, we seek to protect our revenue streams from the impact of hydrological variation, natural disasters and grid failure. We have recently expanded our regional focus in Henan province through the acquisition of development rights to the Wuyue pumped storage hydroelectric power project. Since January 1, 2010, we have signed definitive agreements to acquire five hydroelectric power projects in Yunnan province with an aggregate installed capacity of 118.2 MW. We also plan to enlarge our hydropower capacity by clustering our projects along waterways. We will continue to identify waterways that have or could support multiple projects, so as to achieve operational efficiencies by managing multiple projects with one local management team and by leveraging their local knowledge and relationships. Furthermore, clustered projects allow us to not only lower our unit cost of power production, but also to increase production and maximize revenue through the control of water flow to our plants along a single waterway. We have begun to implement this strategy through the acquisition and completion of construction of the Zhougongyuan hydroelectric power project which was split into two power projects in December 2009-Zhougongyuan and Jiulongshan, which is a series of three hydropower stations along a single waterway. However, the implementation of this strategy is dependent on our ability to identify suitable acquisition targets. See “Risk Factors — Risks Relating to our Company and the PRC Hydropower Industry — We may encounter difficulties in identifying suitable acquisition opportunities, which would result in us being dependent upon a limited number of hydroelectric power projects and having limited revenue growth potential.”

Increase utilization rates and revenues

          We seek to increase power generation at our projects by implementing measures to improve project management, forecast hydrological conditions, maximize and control water flows to our projects and establish new customer relationships. We will continue to enhance our operational control and introduce best practices across our hydroelectric power projects. Following acquisition or commission of a hydroelectric power project, our maintenance team conducts regular maintenance to help minimize accidents, equipment outage and transmission failures. Our engineering team also provides detailed analyses of hydrological conditions to allow us to best adapt our generation plan to prevailing hydrological conditions. Where we operate several plants on a single waterway, we may also control the water flow to our projects so as to maximize the utilization rate at each project and shift production to plants with excess capacity and the highest tariffs. We may also in the future increase installed capacity and utilization at our projects through capital improvements and upgrades.

          The strength of our relationships with our power grids influences both our tariffs and planned annual generation for our hydroelectric power projects, and we will continue to focus on those relationships through frequent communication, investment in projects that will help the grid to maintain an even supply of power across the grid, sharing technical information to assist the grid with load balancing and dispatch and coordinating the water flows to all hydroelectric power projects on waterways covered by the grid. Where opportunities arise to increase our tariffs for a project by connecting to an alternative grid or a local business, we may also

develop these new customer relationships. However, the implementation of our strategy to increase utilization is dependent on substantial variations in climatic and hydrological conditions. Also, the implementation of our strategy to increase revenues is dependent on the customer base we have for electricity produced by our hydroelectric power projects. See “Risk Factors — Risks Relating to Our Company and the PRC Hydroelectric power Industry — Our business is dependent upon hydrological conditions, which may from time to time result in conditions that are unfavorable to our business operations”, and also “Risk Factors — Risks Relating to our Company and the PRC Hydroelectric Power Industry — We derive our revenues solely from the sale of hydropower electricity and each of our projects typically has only one customer. Any prolonged disruption to the demand for hydropower or termination of a customer relationship may cause our revenues to decrease significantly”.

Reduce costs and streamline operations

          We will continue to adopt best practices and standards across our hydroelectric power assets, drawing on our senior management’s expertise and experience in project management. Our management team closely oversees each project’s operational performance versus established metrics, and where a project reports excess cost, we take actions to rationalize operations and realize cost savings. By planning for a high utilization rate and better load balancing, we strive to continue reducing our unit cost of power generation at each project. Where labor and other costs are in excess of that necessary to operate the project, we will rationalize operations, and we retain the right at each project we acquire to terminate redundant employees. With acquisition or commission of additional hydroelectric power projects, we expect to achieve larger economies of scale and gain increased negotiating power over our suppliers. Finally, we expect to continue to realize cost savings through centralized deployment and management of our engineering, maintenance, accounting and other support functions. However, the implementation of our strategy to reduce costs and streamline operations is dependent on our ability to manage our growth effectively. See “Risk Factors — Risks Relating to our Company and the PRC Hydroelectric Power Industry — Our growth strategy is dependent upon our ability to manage our growth effectively which, if unsuccessful, could result in a material adverse impact on our financial condition and results of operations.”

Our Hydropower Assets

Overview

          We categorize hydropower projects into the following four categories:

	•		completed projects refer to projects that are built and in operation;
	•		projects under construction refer to projects that are being built and are not yet in operation;
	•		approved projects refer to projects that have received the approvals, permits and licenses necessary for construction to commence; and
	•		greenfield projects refer to projects that lack one or more construction permits and have not begun construction.

          We currently operate in four Chinese provinces: Zhejiang, Fujian, Sichuan and Yunnan. We focus on a number of diverse locations that are rich in hydroelectric power resources and either have relatively high tariffs or present a high likelihood of tariff increases. The provinces in which we currently operate reflect this strategy. All these provinces are rich in hydroelectric power resources. We believe Yunnan and Sichuan currently have some of the lowest tariff rates in China, and we believe there is a likelihood of tariff increases, while Zhejiang and Fujian already have some of the highest tariff rates in China. In order to rationalize overhead costs, we have acquired and plan to continue to acquire hydroelectric power assets that are clustered or located around good hydrological resources and where we might have the opportunity to acquire adjacent projects. Our six hydroelectric power projects in Zhejiang province are clustered together in the southern part of Zhejiang province, and our four hydroelectric power projects in Fujian are clustered together in the northern part of Fujian province, neighboring Zhejiang province. Our hydroelectric power projects located in Yunnan province, Sichuan province and Fujian province are all in areas of relatively high seismic risk as compared to other areas of China.

Descriptions of the projects

Our hydroelectric power projects are of the following types:

A — Run-of-the-river diversion dam. The typical feature of this type of hydroelectric power project is that a water diversion structure (dam) spans a river and water is conveyed to a powerhouse via a water conveyance facility, which is a tunnel, pipeline, or a combination of the two. The rate of water flow to the powerhouse is equal to the natural rate of flow in the river.

B — Low head run-of-the-river. The typical feature of this type of hydroelectric power project is that a dam spans a river, a powerhouse with low head turbine generator(s) is incorporated into the diversion structure, and water flowing through the powerhouse is released back into the river at the dam. The rate of water flow to the powerhouse is equal to the natural rate of flow in the river.

C — Impoundment dam reservoir. The typical feature of this type of hydroelectric power project is that a water diversion structure

(dam) spans a river and water is conveyed to a powerhouse via a water conveyance facility, which is a tunnel, pipeline, or a combination of the two. The rate of water flow to the powerhouse is not equal to the natural rate of flow in the river, as water is impounded or stored at the dam site in a reservoir. This storage provides flexibility in energy production so that it can be dispatched in line with demand.

D — Pumped storage. The essential feature of this type of hydroelectric power project is a powerhouse with reversible pump hydraulic turbine generators connected by a water conveyance facility to an upper and a lower reservoir. The water is transferred between the two reservoirs, pumped from the lower to the upper reservoir (consuming power) during off-peak periods of surplus grid power and released from the upper to the lower reservoir (producing power) during peak periods of grid deficit.

The table below sets forth technical and operating data of our hydroelectric power projects as of the dates indicated.

 

 

 

Completed Projects

Yunnan Province

     Binglangjiang I. Binglangjiang I is a run-of-the-river, diversion-type hydroelectric power project commissioned in January 1988 with an installed capacity of 21.0 MW and an annual design utilization rate of 60.0%, which was reduced to 45% when Binglangjiang II was commissioned and water previously dedicated solely to Binglangjiang I was then allocated between Binglangjiang I and Binglangjiang II. The effective utilization rate for Binglangjiang I was 60.9% for 2007, 63.6% for 2008 and 51.9% for 2009 reflecting normal operations as Binglangjiang II commenced operations. Yunnan Huabang Electric Power Co., Ltd. entered into a grid connection and dispatching agreement with Yunnan Dehong Electric Power Co., Ltd. on January 15, 2004, which is valid until the termination or expiration of the power purchase agreement described below, pursuant to which Yunnan Huabang is to connect the hydroelectric power project to the power grid owned or controlled by Yunnan Dehong Electric Power Co., Ltd. Yunnan Huabang Electric Power Development Co., Ltd. entered into a supplemental power purchase agreement with Yunnan Dehong Electric Power Co., Ltd. on June 19, 2009, which was valid the calendar year of 2009 and pursuant to which, Binglangjiang I received a floating tariff ranging from RMB0.13 per kWh to RMB0.20 per kWh during the rainy season from June to October and RMB0.17 per kWh from November to December. Yunnan Huabang Electric Power Development Co., Ltd. entered into a supplement power purchase agreement with China Southern Grid, Dehong Power Supply Co. Ltd., which is valid the calendar year of 2010 and pursuant to which Binglangjiang I and Binglangjiang II receive a tariff of RMB0.22 per kWh during the dry season from January to May and RMB0.17 per kWh during the rainy season from June to December subject to new tariff rates promulgated by the government. Binglangjiang I and Binglangjiang II are permitted to supply up to 150.0 million kWh of electricity for 2010. Based on the actual demand, China Southern Grid may purchase more power at the same tariff rates. Binglangjiang I and II were permitted to supply up to 150 million kWh of electricity for 2010. The VAT for this plant is 6.0%.

     Binglangjiang I is located on the Binglangjiang River, which is in the southwestern corner of Yunnan province in Yingjiang County, Dehong Prefecture. Binglangjiang I is a four-component complex consisting of a concrete diversion dam, canal and penstock, powerhouse and substation. The powerhouse contains three 7.0 MW vertical Francis-type or mixed-flow-type turbines manufactured by Hangzhou Electric Equipment Co., Ltd. The area of the powerhouse building that contains the plant is 592.0 m². The area of the land the project utilizes is 2,310.7 km² including the drainage basin. We acquired Binglangjiang I in April 2007.

     Binglangjiang II. Binglangjiang II is a run-of-the-river, diversion-type hydroelectric power project commissioned in September 2009 with a design capacity of 20.0 MW and an annual design utilization rate of 55.0%. We have applied for a tariff of RMB0.12 per kWh during the period of trial run from September 4, 2009 to November 4, 2009 and RMB0.17 per kWh during the period from November 5, 2009 to December 31, 2009. Yunnan Huabang Electric Power Development Co., Ltd. entered into a power purchase agreement and a supplemental agreement with Dehong Power Supply Co. Ltd. on November 4, 2009. The supplemental agreement was valid from November 4, 2009 to December 31, 2009, pursuant to which Binglangjiang II received a tariff of RMB0.17 per kWh during the period from November 4, 2009 to December 31, 2009. For calendar year 2010, Binglangjiang II receives a tariff of RMB0.22 per kWh during the dry season from January to May and RMB0.17 per kWh during the rainy season from June to December subject to new tariff rates promulgated by the government. The VAT for this plant is 6.0%. We executed a grid connection agreement for Binglangjiang II on July 19, 2009, which is valid until the expiration or termination of the power purchase agreement for the project.

     Binglangjiang II is located on the Binglangjiang River in the southwestern corner of Yunnan province in Yingjiang County, Dehong Prefecture. Binglangjiang II is a four-component complex with a concrete diversion dam, tunnel and penstock, powerhouse and substation. The powerhouse contains two 10.0 MW vertical Francis turbine generators manufactured by Kunming Electric Equipment Co., Ltd. The area of the powerhouse building that contains the plant is 800.0 m². The area of the land the project utilizes is 2,310.7 km² including the drainage basin.

     Husahe. The Husahe hydroelectric project is located in Dehong county, Yunnan province and consists of three independent projects, Husahe 3, Husahe 4 and Mangxian, in series on the Husahe River with a total installed capacity of 18.7 MW. The drainage basins for the projects are 262.6 km².

     Husahe 3 is a 3.2 MW four component facility consisting of a masonry diversion, 816 meter long canal and penstock, powerhouse and a 35 kv substation which is connected to a 110 kv substation at Mangxian hydropower Station. The powerhouse contains two horizontal Francis type turbine generator units. The project was placed in service in 1995. The design utilization rate is 74%.

     Husahe 4 is a 14 MW four component facility consisting of a gravity dam, 459 meter concrete lined tunnel and penstock, powerhouse and 35 kv substation which is connected to a 110 kv substation owned by the utility Mangxian Hydropower Station. The project buildings occupy 1,575.72 square meters. The powerhouse contains two vertical Francis type turbine generators. The project was placed in service in 1998. The actual utilization rate is 46%. During high flows, the overflow from Husahe 4 is directed to the 1.5 MW Mangxian Hydropower Station which has a utilization rate of 15%.

     Mangxian is a 1.5 MW small overflow hydroelectric power project.

Sichuan Province

     Liyuan. Liyuan is a low head run-of-the-river hydroelectric power project commissioned in August 2006 with an installed capacity of 12.0 MW and an annual design utilization rate of 42.0%. The effective utilization rate was 18.8% for 2007, 23.8% for 2008 and 22.3% for 2009. The effective utilization rates for Liyuan in 2007, 2008 and 2009 were lower than its design utilization rate due to high variability and concentration of precipitation and water flows during such periods. Water flows at times exceeded facility capacity resulting in abandoned water. We expect this situation to be mitigated in the future with the completed development and construction of a series of upstream plants on the Donghe river which will have the effect of moderating water flows in the river. Until such development is completed, the utilization rates for Liyuan may remain below design. Sichuan Huabang Hydroelectric Development Co., Ltd. entered into a grid connection and dispatching agreement with Sichuan Cangxi Electric Power Co., Ltd. on May 16, 2009, which is valid until May 17, 2010, pursuant to which Sichuan Huabang Hydroelectric Development Co., Ltd. is to connect the hydroelectric power project to the power grid owned or controlled by Sichuan Cangxi Electric Power Co., Ltd.. On May 16, 2009, Sichuan Huabang Hydropower Development Co., Ltd. and Sichuan Cangxi Electric Power Co., Ltd., part of the China Southern Power Grid Corporation Ltd, or the Southern Grid, entered into a power purchase and sale agreement effective from May 18, 2009 until May 18, 2010, pursuant to which the Sichuan Cangxi Electric Power Co., Ltd. is paying Liyuan a tariff of RMB0.29 per KWh. According to the terms of such agreement, the agreement remains effective after the initial term, unless both parties agree to terminate. The VAT for this plant is 6.0%.

     Liyuan is located on the Donghe river, which is in northeast Sichuan province at Donghe, Cangxi County, Guangyuan City. Liyuan consists of a concrete gravity dam, powerhouse, hinged spill way gates and ship lock integrated into one structure, and a substation. The power house contains six vertical 2.0 MW axial Kaplan type turbines manufactured by Jiangxi Pingxiang Hydro Power Facility. The area of the structure that contains the plant is 644.0 m². The area of the land the project utilizes is 4,934 km² including the drainage basin. We acquired Liyuan in May 2007. The major earthquake that struck Sichuan province in 2008 caused damage to the tailwater concrete apron and the spillway gates of Liyuan hydroelectric power project and the repair of such damage cost us RMB11.7 million ($1.7 million) and was completed in March 2010. During the repair period, power generation was limited and hence less than normal production from Liyuan hydroelectric power project was achieved in 2009.

Zhejiang Province

     Shapulong. Shapulong is an impoundment reservoir hydroelectric power project commissioned in June 2001 with an installed capacity of 25.0 MW and an annual design utilization rate of 23.0%. The effective utilization rate was 20.2% for 2007, 19.3% for 2008 and 18.6% for 2009. The lower than design utilization rate in 2008 was due in part to a severe snowstorm that interrupted the transmission system in the area and the lower than design utilization rate in 2009 was related to normal operations coupled with normal fluctuation in precipitation levels. Yunhe Shapulong Hydropower Generation Co., Ltd. entered into a grid connection and dispatching agreement with Lishui Electric Power Bureau on June 10, 2001, for an indefinite term, pursuant to which Shapulong is to connect the hydroelectric power project to the power grid owned or controlled by Lishui Electric Power Bureau. Yunhe County Shapulong Hydropower Generation Co., Ltd. entered into a power grid economic agreement with Lishui Electric Power Bureau, part of the State Grid, in October 2008, which is valid until September 30, 2011 pursuant to which the Lishui Electric Bureau is paying Shapulong a tariff of RMB0.535 per kWh during peak hours and RMB0.268 per kWh during off-peak hours. The VAT for this plant is 6.0%.

     Shapulong is located in the watershed of the Wutongkeng river, which is part of the Ou river basin in Yunhe County, Zhejiang province. Shapulong is a four component project consisting of a concrete faced dam, tunnel and penstock, powerhouse and substation. The powerhouse contains two 12.5 MW vertical Francis turbine generators manufactured by Kvaerner Hangzhou Power Equipment Co., Ltd. The area of the structure that contains the plant is 506.3 m². The area of the land the project utilizes is 42 km² including the drainage basin. We acquired Shapulong in December 2007.

     Yingchuan. Yingchuan is an impoundment reservoir hydroelectric power project commissioned in April 2002 with an installed capacity of 40.0 MW and an annual design utilization rate of 28.0%. The effective utilization rate was 29.3% for 2007, 25.8% for 2008 and 30.6% for 2009. Zhejiang Province Jingning Yingchuan Hydroelectric Development Co., Ltd. entered into a grid connection and dispatching agreement with Lishui Electric Power Bureau in November 2008, which is valid until November 2009 and thereafter so long as there is no disagreement between the two parties, pursuant to which Jingning Yingchuan Hydroelectric Development Co., Ltd. connected the hydroelectric power project to the power grid which is currently under the operation and management of Lishui Electric Power Bureau. According to the terms of such agreement, the agreement remains effective after the

initial term, unless both parties agree to terminate. In November 2007 a power grid economic agreement was executed between Zhejiang Province Jingning Yingchuan Hydroelectric Development Co., Ltd. and Lishui Electric Power Bureau, part of the State Grid, effective from November 1, 2007 to October 31, 2010 pursuant to which the Lishui Electric Power Bureau is paying Yingchuan a tariff of RMB0.535 per kWh during peak hours and RMB 0.268 per kWh during off-peak hours. The VAT for this plant is 6.0%.

     Yingchuan is located on the Yingchuan stream, which is a tributary of the Xiaoxi river in the upper reaches of the Oujiang water system in Jingning County, Zhejiang province. Yingchuan is a four-component complex consisting of a concrete-faced dam, tunnel and penstock, powerhouse and substation. The powerhouse contains two 20.0 MW vertical Francis turbine generators manufactured by Kvaerner Hangzhou Power Equipment Co., Ltd. The area of the structure that contains the plant is 489.2 m². The area of the land the project utilizes is 200 km² including the drainage basin. We acquired Yingchuan in January 2008.

     Wuliting. Wuliting is a low head, run-of-the-river hydroelectric power project commissioned in October 2007 with an installed capacity of 42.0 MW and an annual design utilization rate of 33.0%. The effective utilization rate was 17.8% for 2007, 19.0% for 2008 and 25.2% for 2009. The lower than design utilization rate in 2007 and 2008 was due to commissioning activities of the major equipment. In 2008, no more than two power generators were operating at anytime due to remediation measures to the generator cooling systems required following commissioning. Lower than design utilization rate in 2009 was attributed in part to repair and maintenance to a reservoir upstream of Wuliting and outside of the Company’s control which resulted in water flows in excess of capacity and considerable abandoned water. Qingtian Wuliting Hydroelectric Development Co., Ltd. entered into a grid connection and dispatching agreement with Lishui Electric Power Bureau in November 2008, which is valid until November 2009 and thereafter so long as there is no disagreement between the two parties, pursuant to which Qingtian Wuliting Hydroelectric Development Co., Ltd. is to connect the hydroelectric power project to the power grid which is currently under the operation and management of Lishui Electric Power Bureau. In November 2007 Wuliting entered into a grid economic agreement with Lishui Electric Power Bureau, which is valid until November 16, 2010, pursuant to which Lishui Electric Power Bureau, part of the State Grid, is paying Wuliting a tariff of RMB0.535 per kWh during peak hours, being 8 a.m. to 10 p.m., and RMB0.268 per kWh during off-peak hours, being 10 p.m. to 8 a.m. The VAT for this plant is 6.0%.

     Wuliting is located on the Daxi stream at the lower reaches of the Oujiang River, Wuliting village, Qingtian county, Zhejiang province. Wuliting consists of a concrete gravity dam, powerhouse, spill way, and ship lock integrated into one structure, and a substation. The powerhouse contains three 14.0 MW horizontal bulb turbines manufactured by Hangzhou Jianghe Electromechanical Equipment Co., Ltd. The area of the structure that contains the plant is 1,683.1 m². The area of the land the project utilizes is 8,872 km² including the drainage basin. We acquired Wuliting in January 2008.

     Ruiyang. Ruiyang is an impoundment reservoir hydroelectric power project commissioned in December 2003 with an installed capacity of 32.0 MW and an annual design utilization rate of 24.0%. The effective utilization rates were 24.5%, 18.2% and 22.3% for 2007, 2008 and 2009, respectively, reflecting normal operations and natural fluctuation in precipitation levels. Longquan Ruiyang Cascade II Hydroelectric Co., Ltd. entered into a grid connection and dispatching agreement with Lishui Electric Power Bureau on October 18, 2003, for an indefinite term, pursuant to which Ruiyang is to connect the hydroelectric power project to the power grid owned or controlled by Lishui Electric Power Bureau. Longquan Ruiyang Cascade II Hydroelectric Co., Ltd. entered into a grid economics agreement with Lishui Electric Power Bureau in April 2007, which is valid until December 31, 2009 subject to a two-year automatic renewal, pursuant to which Lishui Electric Power Bureau is currently paying Ruiyang a tariff of RMB 0.535 per kWh during peak hours and RMB 0.268 per kWh during off-peak hours. According to the terms of such agreement, the agreement remains effective after the initial term, unless both parties agree to terminate. The VAT for the plant is 6.0%.

     Ruiyang is located on the upper reach of Longquan Brook (Mei Brook), a tributary to Ou river, within the boundaries of Xiaomei Township, Longquan City, Zhejiang province. Ruiyang is a five-component project consisting of a concrete-faced-rock-fill dam, a 4 km tunnel, penstock, powerhouse, and substation. The power house contains two 16 MW vertical Francis turbine generators manufactured by Kvaerner Hangzhou Power Equipment Co., Ltd. The area of the structure that contains the plant is 892.0 m². The area of the land the project utilizes is 188.0 km² including drainage basin. We acquired Ruiyang in August 2009.

     Jiulongshan and Zhougongyuan. Jiulongshan and Zhougongyuan are a hydroelectric power project complex consisting of three separate hydroelectric power projects in series on the same river. The upstream hydroelectric power project, Zhongongyuan I, is an impoundment dam reservoir hydroelectric power project and the other two, Zhongongyuan II and Zhongongyuan III, downstream are run-of-the-river, diversion dam hydroelectric power projects. The three projects have a total design capacity of 53.6 MW and a combined annual design utilization rate of 25.0%. The effective utilization rate was 19% for 2009 reflecting precipitation levels during the commissioning period of the three projects. Zhougongyuan was commissioned in May through December 2009. Suichang County Jiulongshan Hydroelectric Development Co., Ltd. entered into a grid connection and dispatching agreement with Lishui Electric Power Bureau on April 21, 2009 for each of the three hydroelectric power projects, which is valid until April 2010 subject to a two-year automatic renewal, pursuant to which Suichang County Jiulongshan Hydroelectric Development Co., Ltd. is to connect the hydroelectric power projects to the power grid which is currently under the operation and management of Lishui Electric Power Bureau. In December 2008, the Zhougongyuan hydroelectric power projects entered into a grid economics agreement with Lishui Electric Power Bureau,

which is valid until December 30, 2011, pursuant to which Lishui Electric Power Bureau, part of the State Grid, is paying Zhougongyuan a tariff of RMB0.535 per kWh during peak hours and RMB0.268 per kWh during off-peak hours. In December 2009, Suichang County Jiulongshan Hydroelectric Development Co., Ltd., which then owned all of the three hydroelectric power projects, transferred one of them, Zhougongyuan III, to the newly established Suichang County Zhougongyuan Hydroelectric Development Co., Ltd. with total investment of RMB140.0 million ($19.5 million) and registered capital of RMB90.0 million ($12.8 million). In connection with the transfer, Suichang County Jiulongshan Hydroelectric Development Co., Ltd., reduced its total investment to RMB320.0 million ($44.5 million) and registered capital to RMB204.1 million ($29.0 million). The purpose of the transfer is to have two interconnect arrangements of less than 50 MW resulting in lower VAT for the complex. The VAT for the three hydroelectric power projects was 17.0% for 2009 and 6% for 2010.

     Zhougongyuan is located on the Zhougongyuan river, which is a tributary of the Wuxijiang river. Each of the hydroelectric power projects consists of a concrete dam, tunnel and penstock, powerhouse and substation. Zhougongyuan I powerhouse contains two 12.5 MW vertical Francis type turbine generators, Zhougongyuan II powerhouse contains two 6.3 MW vertical Francis type turbines generators and Zhougongyuan III powerhouse contains two 8.0 MW vertical Francis type turbine generators, all of which were manufactured by Nanping Equipment Manufacturing Co., Ltd. The area of the structures that contain the plants are 447.1 m², 440.9 m² and 487.9 m², respectively. The area of the land the project utilizes is 388.0 km² including the drainage basin.

Fujian Province

     Banzhu. Banzhu is a low head, run-of-the-river hydroelectric power project commissioned in November 1998 with an installed capacity of 45.0 MW and an annual design utilization rate of 40.0%. The effective utilization rate was 42.9% for 2007, 39.3% for 2008 and 32.1% for 2009 reflecting normal operations and natural fluctuation in precipitation levels. Sanming Zhongyin Banzhu Hydroelectric Co., Ltd. entered into a grid connection and dispatching agreement with Fujian Province Sanming Power Industry Bureau on September 22, 2006, which was automatically renewed to September 22, 2010 on July 22, 2008, pursuant to which Sanming Zhongyin Banzhu Hydroelectric Co., Ltd. is to connect the power plant to the power grid which is currently under the operation and management of Fujian Province Sanming Electric Power Bureau. According to the terms of such agreement, the agreement remains effective after the initial term, unless both parties agree to terminate. A power sales and purchase agreement was entered into by Sanming Zhongyin Banzhu Hydroelectric Co., Ltd. and Fujian Province Sanming Power Industry Bureau, part of the Southern Grid, dated 30 April, 1997, for an indefinite term, pursuant to which Fujian Province Sanming Power Industry Bureau is currently paying Banzhu a tariff of RMB0.36 per kWh. The VAT for this plant is 17.0%.

     Banzhu is located on the Shaxi River, a main tributary of the Minjiang River in Fujian province, 8 km downstream from Sanming City. Banzhu consists of a concrete gravity dam, powerhouse, spill way and ship lock integrated into one structure, and substation. The power plant contains three 15.0 MW horizontal bulb turbines manufactured by Hangzhou Generation Equipment Manufacturing Co., Ltd. The area of the structure that contains the plant is 5,915.3 m². The area of the land the project utilizes is 9,774 km² including the drainage basin. We acquired a 90.0% equity interest of Banzhu in October 2008 and the remaining 10.0% equity interest in March 2009.

     Wangkeng. Wangkeng is an impoundment reservoir hydroelectric power project commissioned in July 2004 with an installed capacity of 40.0 MW and an annual design utilization rate of 42.0%. The effective utilization rate was 33.9% for 2007, 36.8% for 2008 and 30.9% for 2009 reflecting normal operations and natural fluctuations in precipitation levels. On July 21, 2008, Pingnan County Wangkeng Hydroelectric Co., Ltd. entered into a grid connection and dispatching agreement with Fujian Province Ningde Electric Power Industry Bureau, which is valid until December 2010, pursuant to which Pingnan County Wangkeng Hydroelectric Co., Ltd. is to connect the hydroelectric power project to the power grid which is currently under the operation and management of Fujian Province Ningde Electric Power Industry Bureau. Pingnan County Fushun Hydroelectric Co., Ltd. (formerly Pingnan Wangkeng Hydroelectric Co., Ltd.), entered into a power purchase and sales agreement with Fujian Province Electric Power Co., Ltd., part of the Southern Grid, on October 28, 2004, which was valid until December 31, 2009, pursuant to which the Fujian Power Grid is paying Wangkeng hydroelectric power project a tariff of RMB0.31 per kWh. We are in the process of renewing the power purchase and sales agreement. The VAT for this plant is 17.0%.

     Wangkeng is located on the Huotongxi river in Pingnan county, Fujian province. Wangkeng is a four component complex consisting of a concrete arch dam, tunnel and penstock, powerhouse and substation. The powerhouse contains two 20.0 MW vertical Francis type turbine generators manufactured by GE Asia (Hangzhou) Hydroelectric Equipment Co., Ltd. The area of the powerhouse structure that contains the plant is 706.8 m². The area of the land the project utilizes is 290 km² including the drainage basin. We acquired Wangkeng in October 2008.

     Yuanping. Yuanping is a run-of-the-river diversion hydroelectric power project commissioned in March 2007 with an installed capacity of 16.0 MW and an annual design utilization rate of 39.0%. The effective utilization rate was 21.5% for 2007, 27.3% for 2008 and 31.6% for 2009. The lower than design utilization rates in 2007 and 2008 were due in part to the ramp up of the hydroelectric power project during the commissioning period and in 2009 due to normal operations coupled with natural fluctuation in precipitation levels. On December 26, 2008, a grid connection and dispatching agreement was executed by and between Pingnan County Yuanping Hydroelectric Co., Ltd. and Pingnan County Power Supply Co., Ltd. which is valid until December 27, 2010, pursuant to which Fujian Province Pingnan

County Yuanping Hydroelectric Co., Ltd. is to connect the hydroelectric power project to the power grid which is currently under the operation and management of Fujian Province Pingnan County Power Supply Co., Ltd. Pingnan County Yuanping Hydroelectric Co., Ltd. entered into a power purchase agreement with Fujian Province Pingnan County Power Supply Co., Ltd. on December 28, 2008, which is valid until December 28, 2009, pursuant to which Fujian Province Pingnan County Power Supply Co., Ltd. is paying Yuanping an interim tariff of RMB0.260 per kWh for supplying electricity and the tariff was approved by the regional pricing bureau to be RMB0.29 per kWh. The VAT for this plant is 6.0%. According to the terms of such agreement, the agreement remains effective after the initial term, until both parties agree to terminate.

     Yuanping is located on the Huotongxi river in Fujian province. Yuanping is a four-component complex with a concrete diversion dam, tunnel and penstock, powerhouse and substation. The powerhouse contains a single 16.0 MW vertical Francis turbine generator manufactured by Nanping Nandian Hydroelectric Equipment Co., Ltd. The area of the structures that contain the plant are 750.0 m². The area of the land the project utilizes is 671 km² including the drainage basin. We acquired Yuanping in October 2008.

     Yuheng. Yuheng is a run-of-the-river diversion hydroelectric power project commissioned in November 1999 with an installed capacity of 30.0 MW and an annual design utilization rate of 42.0%. The effective utilization rate was 33.5% for May 18 to December 31, 2007, 34.6% for 2008 and 26.4% for 2009 reflecting normal operations and natural fluctuation in precipitation levels. The low utilization rate for 2007 was due to the less than expected precipitation in 2007. On December 26, 2008, a grid connection and dispatching agreement was executed by and between Pingnan County Yuheng Hydropower Co., Ltd. and Fujian Province Pingnan County Power Supply Co., Ltd., which is valid until December 27, 2010, pursuant to which, the Yuheng hydroelectric power project is to be connected to the power grid which is currently under the operation and management of Fujian Province Pingnan County Power Supply Co., Ltd. Pingnan County Yuheng Hydropower Co., Ltd. entered into a power purchase agreement with Fujian Province Pingnan County Power Supply Co., Ltd. on December 28, 2008, which is valid until December 28, 2009, pursuant to which, Fujian Province Pingnan County Power Supply Co., Ltd. is to pay Yuheng a tariff of RMB0.29 per kWh for supplying electricity. According to the terms of such agreement, the agreement remains effective after the initial term, until both parties agree to terminate. However, Pingnan County Yuheng Hydropower Co., Ltd. entered into the Interim Agreement of Conformity of Power Purchase and Supply in Rongping Supply Area with Fujian Province Pingnan County Power Supply Co., Ltd., Fujian Province (Pingnan) Rongping Chemical Industry Co., Ltd. and Pingnan County Hengli Hydroelectric Co., Ltd. on August 31, 2007, or the Interim Agreement, which is in force until August 31, 2010, pursuant to which, Fujian Province Pingnan County Power Supply Co., Ltd. and Fujian Province (Pingnan) Rongping Chemical Industry Co., Ltd. are to pay Yuheng a tariff of RMB0.181 per kWh for supplying 300 million kWh of electricity to Fujian Province (Pingnan) Rongping Chemical Industry Co., Ltd. for a contractual term of forty-two months, which ends in October 2010. Therefore, for electricity amount supplied under the Interim Agreement to Fujian Province (Pingnan) Rongping Chemical Industry Co., Ltd., Yuheng is only entitled to RMB0.181 per kWh of the RMB0.29 per kWh revenue received from Fujian Province Pingnan County Power Supply Co., Ltd. and is obligated to remit the remaining RMB0.109 per kWh, to Fujian Province (Pingnan) Rongping Chemical Industry Co., Ltd. until the earlier of reaching the cumulative volume of 300 million kWh or October 2010. Pursuant to the Transfer of Yuanping Hydropower Plant and Cooperation Agreement entered into between Fujian Province (Pingnan) Rongping Chemical Industry Co., Ltd. and Fujian Province Anheng Assets Management Co., Ltd., Fujian Yuheng Power Group and Fujian Dachuang Hydro Power Co., Ltd, which were the founders of Pingnan County Yuheng Hydropower Co., Ltd., Yuheng provided a guarantee deposit of RMB30 million to Fujian Province (Pingnan) Rongping Chemical Industry Co., Ltd. to guarantee the supply of electricity of an aggregate volume of 300 million kWh over the contractual term and is entitled to be refunded RMB0.1 of the guarantee deposit for every kWh of electricity supplied to Rongping Chemical through the power grid up to 300 million kWh over the contractual term. The VAT for this plant is 6.0%.

     Yuheng is located in the Huotongxi river in Fujian province. Yuheng is a four-component complex with a concrete diversion dam, tunnel and penstock, powerhouse, and substation. The powerhouse contains three 10.0 MW vertical mixed flow Francis turbine generators manufactured by Chongqing Turbine Generator Manufacturing Company Ltd. The area of the structure that contains the plant is 546.0 m². The area of the land the project utilizes is 671 km² including the drainage basin. We acquired Yuheng in October 2008.

Projects under Development

Henan Province

     Wuyue. Wuyue will be a pumped storage hydroelectric power project with a planned design capacity of 1,000.0 MW and an annual design utilization rate of between 15% to 30%, depending upon utility requirements, the construction of which is anticipated to begin in the third quarter of 2010 and the commissioning of which is expected to be in stages between 2014 and 2015. The Wuyue project is party to various design, construction, equipment and installation contracts totaling approximately RMB154.2 million ($22.6 million) in value. The total cost to construct the Wuyue hydroelectric power project is projected to be RMB4.0 billion ($0.6 billion). We expect to fund the construction of this project primarily through bank loans and in part from the proceeds of the initial public offering.

     Wuyue will be connected to the Hubei-Henan exchange interface of the east channel in the Henan 500 KV power grid. Wuyue will be located in Yinpeng Township, Guangshan County, Xinyang City, Henan province, between the existing lower Wuyue reservoir and an upper reservoir yet to be built. The hydroelectric project will contain four 250.0 MW reversible pump hydraulic turbine generators. The area of the hydroelectric power project will be 3,800 m². The area of the land the project will occupy will be 6,940 m² including power plant and water conveyance facilities.

Projects for which We have Signed Definitive Agreements to Acquire

Yunnan Province

     Xiaopengzu. In April 2010, we signed a definitive agreement to acquire the Xiaopengzu hydroelectric power project located in Yunnan province for a purchase price of RMB240.0 million ($35.1 million). The acquisition is subject to customary closing conditions, including obtaining governmental approvals.

     The Xiaopengzu hydroelectric project is the first of eight projects located on the Puduhe River north of Kunming in Yunnan province. The drainage basin catchment area above dam is 8,162 km². Xiaopengzu is a 44 MW four component facility consisting of a concrete arch gravity dam and reservoir, 522 meter tunnel and penstock, powerhouse, a 110 kv substation, and 12 km transmission line. The powerhouse contains two vertical 22 MW Francis type turbine generator units. The project was placed in service in 2009. The design utilization rate ranges from 45% to 55% depending upon the water releases from Dainchi Lake which supplement the natural flows in the Puduhe River. The project facilities occupy 1,100 square meters.

     Minrui. In April 2010, we signed a definitive agreement to acquire three operating hydroelectric power projects of the Minrui hydroelectric power project complex located in Yunnan province for a purchase price of RMB96.3 million ($14.1 million). The acquisition is subject to customary closing conditions, including obtaining governmental approvals. The three projects, the Al Lu He project, the Latudi project and the Zi Ling He project, have a total installed capacity of 55.5 MW.

     The Al Lu He project is a 12.6 MW, 617 meter water head facility which utilizes a 22.79 km² drainage basin. The project is a four component complex consisting of diversion at elevation 1,990 meters, a 1,354 meter long, 0.8 meter diameter penstock, powerhouse containing two 6.3 MW horizontal Pelton type impulse turbines and generators and 110 kv substation. The design utilization rate is 54% or 4,757 hours. The project was placed in service in 2007.

     The Latudi project is a 18.9 MW, 598 meter water head facility which utilizes a 22 km² drainage basin. The project is a four component complex consisting of diversion at elevation 1,853 meters, a 1,780 meter long, 1.26 meter diameter penstock, powerhouse containing three 6.3 MW horizontal Pelton type impulse turbines and generators and 110 kv substation. The design utilization rate is 46% or 4,041 hours. The project was placed in service in 2009.

     The Zi Leng He project is a 24 MW, 622 meter water head facility which utilizes three separate diversions. The drainage basin for all three totals 24 km² . The project is a five component complex consisting of three separate diversions at elevation 1,805 meters, a 7,360 meter long tunnel 1,788 meter long, 0.8 meter diameter penstock, powerhouse containing four 6.3 MW horizontal Pelton type impulse turbines and generators and 110 kv substation. The design utilization rate is 63% or 5,554 hours. The project was placed in service in 2007.

Our Project Acquisition Process

Our steps for evaluating and acquiring hydroelectric power projects are set forth below.

 

 

Opportunity Sourcing and Screening

     Our management has a broad network of contacts throughout China, including contacts in the hydroelectric industry and in the central, provincial and local governments, through which we have developed a pipeline of hydroelectric project acquisition

opportunities.

     Our criteria for evaluating a potential target hydroelectric power project or development project for acquisition include the following:

	•		acquisition price, and anticipated construction cost where applicable, as compared to current and projected cash flow and the historical and projected return on investment, taking into account historical tariff levels and tariff trends;
	•		the acquisition cost as compared to the estimated replacement value, the appraised value and our own assessment of fair value using a number of valuation methodologies;
	•		the status of approvals, permits and licenses required for the construction and operation of the plant, including the legal status of the land occupied by the plant;
	•		the hydrological condition of the plant site;
	•		the ability to retain existing or obtain new local bank financing on reasonable terms;
	•		the operating history of the target business, including actual power production and local supply and demand;
	•		the installed capacity and design of the hydroelectric power project operated by the target business, including opportunities to expand or otherwise improve generation capacity taking into consideration the current installed capacity and design utilization;
	•		the potential to diversify the regions in which we operate or to realize operational efficiencies from clustering multiple plants on a single water way;
	•		the competency of existing management and operational personnel of the target project; and
	•		the local government for the project, the relationship with the customer grid and the local tax rates.