APWR's DG and wind power businesses are driven by overarching sector trends toward energy and environmental conservation. Its onsite DG plants provide improved power reliability, generation efficiency, and reduced emissions. We believe its prospective wind turbine business presents opportunities to benefit from the rapid growth of wind power within China. We believe China's rapidly increasing energy consumption along with growing concerns about air pollution and energy security are increasing public awareness and driving demand for approaches to improve energy efficiency, decrease emissions, and reduce reliance on foreign-controlled fuels. We believe these trends form the basis of an attractive market opportunity for APWR.

China's insatiable demand for energy
China's strong economic growth has been fueled by a rapidly increasing demand for energy. China's energy consumption has exceeded 10% annual growth for the past five years, according to China's National Development and Reform Commission (NDRC). The International Energy Agency (IEA) estimates that China's primary energy demand will increase 3.2% annually from 1,742 million tons of oil equivalent (MTOE) in 2005 to 3,819 MTOE in 2030. It projects more rapid growth in the near-term, projecting a 5.1% annual increase from 2005 to 2015, driven by China's continued industrial expansion. Based on these growth rates, China will overtake the US as the world's largest energy consumer shortly after 2010. To keep pace with this demand, the IEA estimates that China needs to add more than 1,300 GW to its electricity-generating capacity, more than the total current installed capacity in the US.

Environmental concerns continue to mount...
China's environmental issues are well documented. The country's rapid economic growth has come at the price of a deteriorating environment. The air in many Chinese cities is polluted with sulfur dioxide, ozone, and particulate matter, byproducts of the combustion of fossil fuels used in power generation and industrial processes. The World Bank and China State Environmental Protection Administration (SEPA) estimate that only 1% of the 560 million urban Chinese breathe air that meets European Union quality standards. Contributing approximately 70% of China's current electricity generation, coal-fired power plants are the primary contributor to emissions of pollutants. Coal is expected to remain China's dominant energy source through 2030. The DOE EIA projects that China's energy-related carbon dioxide emissions will increase 3.4% annually from 4,707 million metric tons in 2004 to 11,239 million metric tons in 2030, reflecting the largest worldwide increase during that period. Furthermore, China's energy-related emissions are expected to exceed US emissions by approximately 5% in 2010 and by 41% in 2030.

...as do concerns about power reliability and energy security
China's electricity infrastructure (power generation, transmission and distribution grid) has expanded rapidly, but continues to struggle to keep pace with the rapidly increasing demand. Since 2003, China has faced electricity shortages and frequent blackouts in many provinces, according to Worldwatch Institute. China's National Renewable Energy Laboratory estimates that China had power shortages in 24 of 31 provinces in 2004. Consistent availability of electric power remains an issue throughout the country. In addition, China's increasing reliance on imported oil and gas, has increased the Government's awareness of energy security. While the country has abundant coal resources, its increasing dependence on foreign resources, namely oil, exposes it to volatility associated with pricing and availability. China is addressing its energy security requirements by securing foreign resources as well as by increasing efficiency and the use of renewable energy.

China's energy policies focused on fostering energy and environmental conservation
China has established a basic regulatory foundation for its energy sector. Highlighting the emphasis on sustainable growth, China's energy legislation features energy conservation and renewable energy as prominent themes. We note that cogeneration and wind power are consistently identified as preferred implementation options within these plans and policies. The table below provides highlights of the key plans and policies governing China's energy sector. We believe this underlying regulatory foundation continues to evolve and improve. In December 2007, China's State Council Information Office published a white paper entitled China's Energy Conditions and Policies. It acknowledges China's increasingly important role in maintaining global energy security. It also identifies resource conservation and environmental protection as two basic State policies. It targets industries with high energy consumption (steel, nonferrous metals, petroleum, petrochemical, etc.) for improved energy efficiency. Cogeneration is specifically identified as one of ten key energy efficiency programs by the NDRC. Additionally, wind energy is highlighted throughout China's policies as a key renewable energy technology.