UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 20-F

(Mark One)

£	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
S	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2011
OR
£	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
£	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 .

Commission file number: 001-34609

CHINA HYDROELECTRIC CORPORATION
(Exact name of Registrant as specified in its charter)

Not applicable
(Translation of Registrant’s name into English)

Cayman Islands
(Jurisdiction of incorporation or organization)

2105A, Ping’an International Financial Center, No. 3 South Xinyuan Street
Chaoyang District, Beijing
People’s Republic of China 100027
(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of each class	Name of each exchange on which registered
American Depositary Shares, each representing three Ordinary shares, par value $0.001 per share	New York Stock Exchange
Ordinary Shares, par value $0.001 per share	New York Stock Exchange*
Warrants each to purchase three Ordinary Shares	New York Stock Exchange

*Not for trading, but only in connection with the registration of American Depositary Shares.

Securities registered or to be registered pursuant to Section 12(g) of the Act.
None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None

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: 161,989,097 ordinary shares.

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

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

Large accelerated filer £     Accelerated filer £     Non-accelerated filer R

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

U.S. GAAP R International Financial Reporting Standards as issued by the International Accounting Standards
Board £ Other £

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. £ Item 17 £ 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). £ Yes R No

CHINA HYDROELECTRIC CORPORATION
TABLE OF CONTENTS

		Page
INTRODUCTION			1
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS			2
PART I.			4
ITEM 1.	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS		4
ITEM 2.	OFFER STATISTICS AND EXPECTED TIMETABLE		4
ITEM 3.	KEY INFORMATION		4
ITEM 4.	INFORMATION ON THE COMPANY		36
ITEM 4A.	UNRESOLVED STAFF COMMENTS		87
ITEM 5.	OPERATING AND FINANCIAL REVIEW AND PROSPECTS		87
ITEM 6.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES		131
ITEM 7.	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS		144
ITEM 8.	FINANCIAL INFORMATION		147
ITEM 9.	THE OFFER AND LISTING		148
ITEM 10.	ADDITIONAL INFORMATION		151
ITEM 11.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		161
ITEM 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES		163
PART II.			164
ITEM 13.	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES		164
ITEM 14.	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS		164
ITEM 15.	CONTROLS AND PROCEDURES		164
ITEM 16A.	AUDIT COMMITTEE FINANCIAL EXPERT		165
ITEM 16B.	CODE OF ETHICS		165
ITEM 16C.	PRINCIPAL ACCOUNTANT FEES AND SERVICES		165
ITEM 16D.	EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES		166
ITEM 16E.	PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS		166
ITEM 16F.	CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT		166
ITEM 16G.	CORPORATE GOVERNANCE		166
PART III.			167
ITEM 17.	FINANCIAL STATEMENTS		167
ITEM 18.	FINANCIAL STATEMENTS		167
ITEM 19.	EXHIBITS		167
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS			F-1
EX- 4.2
EX- 8.1
EX- 10.2
EX- 12.1
EX- 12.2
EX- 13.1
EX- 13.2
EX- 15.1
EX- 15.2

i

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. Certain 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.

• “Yuanping” means the Yuanping Hydroelectric power project, which is located in Pingnan County, Ningde City, Fujian province.

1

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;

2

• 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.

3

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 the Binglangjiang hydroelectric power project and thereby commenced our business as an owner and 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, 2009, 2010 and 2011 and the selected consolidated balance sheet data as of December 31, 2009, 2010 and 2011 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 period from January 1, 2007 to April 24, 2007 and for us for the year ended December 31, 2007 and the selected consolidated balance sheet data for us as of 2007 have been derived from the audited financial statements and the related notes of Binglangjiang or us 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.

4

	Binglangjiang (Predecessor)				Our Company (Successor)
	For the Period from January 1 to April 24, 2007				For the Year Ended December 31,
					2007				2008				2009				2010				2011
					(US$ in thousands, except share and per share data)
Consolidated Statements of Operations Data:
Continuing operations:
Revenues		$	571			$	2,434			$	14,715			$	34,327			$	63,280			$	57,544
Cost of Revenues			(219	)			(813	)			(5,884	)			(16,458	)			(23,970	)			(32,545	)
Gross profit			352				1,621				8,831				17,869				39,310				24,999
Operating expenses:
General and Administrative expenses			(23	)			(2,560	)			(6,741	)			(9,003	)			(19,307	)			(29,028	)
Operating income(loss)			329				(939	)			2,090				8,866				20,003				(4,029	)
Interest income			—				1,051				1,340				510				1,190				102
Interest expense			(285	)			(3,275	)			(5,653	)			(13,359	)			(15,167	)			(26,550	)
Change in fair value of derivative financial liabilities and warrant liabilities			—				(266	)			420				(13,793	)			365				951
Exchange loss			—				(1,095	)			(1,067	)			(23	)			(855	)			(851	)
Share of losses in an equity investee			—				(27	)			(503	)			(70	)			—				—
Impairment loss on long-lived assets			—				—				—				—				—				(11,590	)
Impairment loss on goodwill			—				—				—				—				—				(11,388	)
Other income (loss), net			—				8				144				(225	)			122				(348	)
Income (loss) before income tax expenses			44				(4,543	)			(3,229	)			(18,094	)			5,658				(53,703	)
Income tax expense			(1	)			(17	)			(430	)			(1,433	)			(3,557	)			(1,549	)
Net income (loss) from continuing operations			43				(4,560	)			(3,659	)			(19,527	)			2,101				(55,252	)
Net (loss) income net of income tax (expense) benefit from discontinued operations			—				—				(369	)			99				1,884				(38	)
Less:
Net loss (income) attributable to noncontrolling interests			—				—				41				32				(243	)			9,901
Net income (loss) attributable to China Hydroelectric Corporation shareholders			43				(4,560	)			(3,987	)			(19,396	)			3,742				(45,389	)
-Continuing operations			43				(4,560	)			(3,618	)			(19,495	)			1,858				(45,351	)
-Discontinuing operations			—				—				(369	)			99				1,884				(38	)
Net profit (loss) for the year			43				(4,560	)			(4,028	)			(19,428	)			3,985				(55,290	)
Consolidated Statements of Operations Data:
Less:
Cumulative dividends on Series A convertible redeemable preferred shares			—				—				(14,680	)			(19,836	)			(1,989	)			—
Cumulative dividends on Series B convertible redeemable preferred shares			—				—				(5,531	)			(14,412	)			(1,412	)			—

5

	Binglangjiang (Predecessor)			Our Company (Successor)
	For the Period from January 1 to April 24, 2007			For the Year Ended December 31,
				2007				2008				2009				2010				2011
	(US$ in thousands, except share and per share data)
Cumulative dividends on Series C convertible redeemable preferred shares			—			—				—				(356	)			(162	)			—
Beneficial conversion feature on Series A convertible redeemable preferred shares			—			—				—				—				(6,990	)			—
Beneficial conversion feature on Series B convertible redeemable preferred shares			—			—				—				—				(5,040	)			—
Beneficial conversion feature on Series C convertible redeemable preferred shares			—			—				—				—				(222	)			—
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			—			(4,560	)			(38,901	)			(55,872	)			(12,073	)			(45,389	)
Net (loss) income attributable to ordinary shareholders per share			—			(0.33	)			(2.50	)			(3.59	)			(0.08	)			(0.29	)
From continuing operations			N/A			N/A				(2.48	)			(3.59	)			(0.09	)			(0.29	)
From discontinuing operations			N/A			N/A				(0.02	)			0.00				0.01				(0.00	)
Weighted average ordinary shares used in basic and diluted net loss attributable to China Hydroelectric Corporation shareholders per share computation			*			13,817,466				15,554,416				15,541,666				143,253,450				156,505,076
Net (loss) income attributable to ordinary shareholders per ADS			—			—				—				—				(0.25	)			(0.87	)
From continuing operations			N/A			N/A				N/A				N/A				(0.29	)			(0.87	)
From discontinuing operations			N/A			N/A				N/A				N/A				0.04				(0.00	)
Weighted average ordinary shares used in basic and diluted net loss attributable to ordinary shareholders per ADS computation			—			—				—				—				47,751,150				52,168,358
Other Financial Data:
EBITDA attributable to China Hydroelectric Corporation shareholders, as adjusted(1)			*			(320	)			6,474				22,782				42,788				31,490

*	Not provided, as the information relates to the results of operations of Binglangjiang prior to its acquisitions by us.
(1)	See “Operating and Financial Review and Prospects—Results of Operations—EBITDA, as adjusted for a reconciliation of this non-GAAP number.

6

	Our Company (Successor)
	As of December 31,
	2007			2008			2009				2010			2011
	(US$ in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents		$	15,606		$	38,693		$	31,618			$	33,457		$	8,391
Accounts receivable, net			329			3,137			8,434				4,359			4,246
Deferred tax assets			—			1,166			489				1,260			1,799
Amounts due from related parties, net			25			13			—				5,950			—
Debt issuance costs			47			—			—				—			—
Amounts due from an equity investee			287			4,534			—				—			—
Prepayments and other current assets			3,269			9,437			4,582				8,221			2,999
Assets classified as held-for-sale			—			—			—				—			21,693
Total current assets			19,563			56,980			45,123				53,247			39,128
Investment in an equity investee			4,721			4,295			—				—			—
Deferred IPO initial public offering costs			—			6,032			12,774				—			—
Property, plant and equipment, net			20,713			334,512			384,493				583,686			580,964
Land use rights, net			8,333			30,678			38,707				48,944			50,666
Intangible assets, net			3,008			3,666			4,513				6,249			5,788
Goodwill			2,773			96,533			107,824				136,635			135,651
Deferred tax assets			—			—			—				986			1,767
Other non-current assets			—			872			399				709			951
Total non-current assets			39,548			476,588			548,710				777,209			775,787
Total assets			59,111			533,568			593,833				830,456			814,915
Liabilities classified as held-for-sale			—			—			—				—			11,920
Total current liabilities			14,436			77,285			101,467				163,720			177,855
Long term loan			10,269			138,133			172,469				224,297			215,382
Deferred tax liabilities			—			13,415			18,599				25,350			26,563
Other non-current liabilities			—			568			104				106			237
Convertible redeemable preferred shares			—			299,236			353,840				—			—
Total China Hydroelectric Corporation shareholders’ equity (deficit)			34,406			4,181			(53,435	)			405,887			394,400
Noncontrolling interests			—			750			789				11,096			478
Total liabilities and shareholders’ equity			59,111			533,568			593,833				830,456			814,915

7

	Binglangjiang (Predecessor)		Our Company (Successor)
	As of and For the Period from January 1 to April 24, 2007		As of and For the Period Ended December 31
			2007			2008			2009			2010			2011
Selected Operation Data(1)
Installed Capacity (MW)		21.0		58.0(2	)		271.0(2	)		376.60			548.8			547.8
Electricity Sold (kWh)		23,495,595		108,303,945(3	)		333,964,005(3	)		754,628,548			1,397,833,405			1,331,904,523	(3)
Effective tariff (RMB/kWh)		0.2		0.18(4	)		0.33(4	)		0.34	(4)		0.33	(4)		0.30	(4)

(1)	For Binglangjiang, operating data given are for the periods stated. For our company, operating data given are for our period of ownership of the hydroelectric power projects during the periods indicated.
(2)	Our aggregate installed capacity information presented includes, as of December 31, 2007 and December 31, 2008, the installed capacity of Shapulong, as of December 31, 2008, the installed capacity of Shapulong, Banzhu, and Wangkeng, as of December 31, 2009, the installed capacity of Wangkeng, as of December 31, 2010, the installed capacity of Wangkeng, Jinlong, Jintang and Jinwei, although as of such respective dates, our equity interest in Shapulong, Banzhu, Wangkeng, Jinlong, Jintang and Jinwei were 50.0%, 90.0%, 90.0%, 55.0%, 74.0% and 74.0% respectively. We acquired the remaining 10.0% interest in Banzhu in March 2009, the remaining 50.0% interest in Shapulong in August 2009 and the remaining 10% interest in Wangkeng in January 2011. Our aggregate installed capacity information presented includes, as of December 31, 2011, the installed capacity of Dazhaihe, and excludes the installed capacity of Yuanping.
(3)	Electricity sold and effective tariff information for the year ended December 31, 2007 does not reflect electricity sold by Shapulong. Electricity sold and effective tariff information for the year ended December 31, 2008 does not reflect electricity sold by Shapulong and Yuanping. Our 50.0% equity interest in Shapulong accounted for using the equity method of accounting and our proportional share of Shapulong’s net loss is included as a share of losses in equity investee, in our consolidated statement of operations for the year ended December 31, 2007 and 2008. In the years ended December 31, 2007 and 2008, Shapulong sold 43,292,057 kWh, 42,308,157kWh, respectively. We acquired the remaining 50.0% equity interest in Shapulong in August 2009. Although Yuanping commenced operations in March 2007, and has transmitted electricity to the power grid controlled by Fujian Ningde Electric Power Bureau, that transmission was made without a fixed or pre-determined tariff per kWh until late June 2009. Therefore, cash received in exchange for the transmission of electricity to the power grid before late June 2009 was recorded as customer deposits. Accordingly, no revenues were recorded by Yuanping in the year ended December 31, 2008. However, related cost of revenue was not deferred, and was charged to expenses as incurred. All of the customer deposits received from the date of our acquisition of Yuanping after the per kWh tariff became fixed or determinable. In August 2009, the Ningde Pricing Bureau, the regional pricing bureau in Fujian province, approved a unit price per kWh of RMB0.29, inclusive of value-added tax, or VAT, for electricity transmitted by Yuanping to the power grid controlled and owned by the provincial grid company prior to July 8, 2009. The unit price per kWh of RMB0.29 will continue to be in effect until the regional pricing bureau approves a new unit price per kWh. In the year ended December 31, 2007 and 2008, Yuanping transmitted 30,071,595 kWh, 28,292,478 kWh of electricity, respectively. We entered into an Equity Purchase and Sale Agreement to sell Yuanping in December 2011, the transaction was completed on March 2, 2012. Electricity sold for the year ended December 31, 2011 reflects electricity sold by all our operating projects, excluding Yuanping, which is a discontinued operation as of March 2, 2012.
(4)	see Exhibit 15.1 to this Annual Report on Form 20-F for the details of the calculation of effective tariff. Effective tariff for the year ended December 31, 2011 reflects contributions from all our projects excluding Yuanping, a discontinued operation as of March 2, 2012.

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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 RMB 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 RMB7.3046 to $1.00, RMB6.8346 to $1.00, RMB6.8282 to $1.00, RMB6.6227 to $1.00 and RMB6.3009 to $1.00 as of December 31, 2007, 2008, 2009, 2010 and 2011, respectively, and the averages of the middle rates during such years were RMB7.5560 to $1.00, RMB7.0696 to $1.00, RMB6.8314 to $1.00 and RMB6.7255 to $1.00, RMB6.4618 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 April 27, 2012, the middle rate was RMB6.2787 to $1.00.

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

Our business and operations are subject to various risks, many of which are beyond our control. If any of the risks described below actually occurs, our business, prospects, financial condition or results of operations could be materially and adversely affected.

Risks Relating to our Company and the PRC Hydroelectric Power Industry

Our liquidity position poses risk to our operations.

As of December 31, 2011, we had a working capital deficiency of approximately $138.7 million. Due to our working capital deficiency, our independent registered public accountant has stated in its report dated April 27, 2012 with respect to our financial statements as of and for the year ended December 31, 2011 that these circumstances raise substantial doubt about our ability to continue as a going concern. We are currently seeking to raise funds through various means as described below. Our ability to continue as a going concern is dependent upon obtaining the necessary financing to meet our current and future liquidity needs.

Management has been closely monitoring our costs and intends to restrict such costs to those expenses that are essential to our operations. Management has been actively pursuing various means of securing additional financing, including assets sales, borrowings from banks and other financial and non-financial institutions and investments from private investors. In 2011, we raised additional working capital in the amount of approximately $10.0 million from the sale of common stock to Vicis Capital Master Fund. In the first quarter of 2012, we raised a total of $11.7 million through borrowings from banks and other non-financial institution. However, we cannot make any assurances that our cost reduction efforts will be effective or that any additional financing will be completed on a timely basis, on acceptable terms or at all. In the event that we fail to raise funds sufficient to meet our liquidity needs, we may be forced to substantially curtail our operations or otherwise take

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measures that would materially and adversely affect our business, results of operations and business prospects.

Our financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. Should the going concern assumption not be appropriate and we are not able to realize our assets and settle our liabilities, commitments and contingencies in the normal course of operations, adjustments would be required to our consolidated financial statements to the amounts and classifications of assets and liabilities, and these adjustments could be significant.

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 currently have a total of twenty-six operating hydroelectric power projects from continuing operations. Our financial condition, results of operations and our future success will, to a significant extent, depend on our ability to continue to acquire, retain and, develop hydroelectric power projects throughout China and to achieve significant economies of scale. Our company has a limited operating history and is subject to the risks and uncertainties associated with early stage companies. 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. Due to restrictions on bank lending imposed by the PRC government in 2011, we have been experiencing difficulty in obtaining financing from our principal banks, and, as part of our effort to seek funding from other sources, we entered into an Equity Purchase and Sale Agreement to sell Yuanping hydroelectric power project in December, 2011 and the transaction was completed on March 2, 2012. Although we generally intend to minimize sales of our operating assets, we may need to sell additional hydroelectric power projects in the future. 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. Based on decades of hydrology recordkeeping by government and other organizations for the provinces where we have projects situated, as well as engineering studies prepared during the project design phase, we believe that over time, while annual precipitation levels will typically be above or below average, such variations will mostly likely average out. However, 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, overall utilization at our hydroelectric power projects in 2011 was significantly below overall utilization in 2010 due to significantly lower levels of precipitation, which has significantly affected our results of operations in 2011. If hydrological conditions result in droughts or other conditions that negatively affect our existing or proposed hydroelectric generation business, our results of operations may be materially and adversely affected.

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We have encountered and may continue to encounter difficulties in pursuing our acquisition strategy and have sold and may continue to sell operating assets, which would result in us being dependent upon our current or remaining portfolio of hydroelectric power projects and having limited revenue growth potential.

Our ability to implement our acquisition strategy depends on a number of factors, in particular, our ability to maintain our current portfolio of hydroelectric power projects, identify suitable acquisition targets, reach agreements with sellers for acceptable consideration and on commercially reasonable terms and secure financing necessary for completing future acquisitions. There is no guarantee that we have the ability to pursue acquisition opportunities we identify in the future or the ability to maintain our current portfolio of power projects. In 2011, except for the acquisition of the 10.0% equity interest we did not already own in Fujian Wangkeng and the acquisition of a 100.0% equity interest in Jinping Kanghong Hydroelectric Development Co., Ltd., (“Dazhaihe”) hydroelectric power project, we did not acquire any additional hydroelectric power projects, nor do we currently anticipate any major asset purchase in at least the short term. Due to restrictions on bank lending imposed by the PRC government, we did not proceed with two acquisitions as planned in 2011 and entered into an Equity Purchase and Sale Agreement to sell Yuanping hydroelectric power project in December, 2011 to help meet our liquidity needs. In March 2012, we completed the sale of the Yuanping hydroelectric power project. We cannot assure you that we will not need to sell additional operating assets. In addition, if we decide to make additional acquisitions in the future, we believe identifying and acquiring projects on reasonable terms may be more difficult as domestic and international competitors seek to acquire small hydroelectric power projects in China. Furthermore, depending on factors such as the national monetary policy and the credit market environment in China, in the event that we are in a position to pursue acquisitions in the future, we may not be able to secure financing for additional acquisitions.

If we need to sell additional operating assets or we are unable to acquire suitable hydroelectric power projects in China, we will continue to remain dependent upon our existing or remaining hydroelectric power projects. This may:

• result in our dependence upon the performance of our existing operating plants;

• result in our dependence upon electricity sales in the existing geographical areas;

• subject us to increased risks associated with drought or other natural disasters in the existing geographical areas we operate; and

• limit our ability to grow our revenues and to obtain the benefits of scale that we anticipate.

We may need additional funding to accomplish our growth strategy and to meet our operational needs and may be unable to raise capital or borrow money on terms favorable to us or at all, which could increase our financing costs, dilute the ownership interests our existing shareholders, affect our business operations or force us to delay, reduce or abandon our growth strategy.

Despite the sale of the Yuanping Hydroelectric power project in March, 2012, our long-term growth strategy remains 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. In addition, we may need to raise additional funds to meet our liquidity and other operational needs. 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 if our operations will generate sufficient annual cash flows to fund our capital investment requirements. If and when that does not occur, we will be required to finance our cash needs through public or private equity offerings, bank loans or other debt financing, or otherwise. We 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,

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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, if available at all, 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 or securities convertible in equity to finance acquisitions or expansion or meet our liquidity and other business needs could cause earnings or ownership dilution to your shareholding interests in our company. We cannot assure you that we will not pursue sale of our ADSs or ordinary shares or securities convertible into our ordinary shares that would be highly dilutive to our existing shareholders.

We cannot assure you that we can obtain bank loans on terms acceptable to us or at all

In 2011, the PRC government, as part of its effort to reduce inflation, implemented a monetary policy that severely limited the amounts that banks could lend. As a result, we experienced difficulty in borrowing from our principal banks, although we were able to meet our liquidity needs at the end of 2011 through negotiations to extend the term of certain current obligations, several smaller loans with one-year terms, an exercise of warrants by a stockholder and the sale of the Yuanping hydroelectric power project. Although there are signs that the PRC government might loosen its monetary policy in 2012, we cannot assure you that we can obtain bank financing on terms acceptable to us or at all in the future or that we will be able to meet our liquidity needs through bank loans whether it is due to changes in the PRC’s monetary policy or otherwise.

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 RMB11.7 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.

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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 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:

• inability to obtain financing on satisfactory terms or obtain any financing at all;

• 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; 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.

On October 22, 2009, we entered into a capital injection agreement with Henan Lantian Group to subscribe for a 79.0% equity interest in Henan Wuyue Storage Power Generation Co., Ltd. (“Wuyue”), which owns the right to develop a pumped storage hydropower project of 1,000 megawatts in Henan province. Pursuant to the agreement, we completed the first capital injection of RMB 32.5 million ($4.8 million) on March 23, 2010. In September 2010, we signed a framework agreement with China Guangdong Nuclear Energy Development Co. Ltd. (“Guangdong Nuclear”) for the equity transfer of a controlling interest of Wuyue. Under the framework agreement, subject to the completion of definitive documents, completion of due diligence and receipt of required

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governmental and other approvals in the PRC, the Company would transfer a 51.0% equity interest in Wuyue to Guangdong Nuclear, in exchange for which Guangdong Nuclear agreed to fund its proportionate share of the on-going development costs of the project. The framework expired on December 31, 2011, and the project has been largely at a standstill since 2009. The Company expects the project will continue to be at a standstill and has no intention to make further investments. As a result, we recognized impairment loss of Wuyue’s construction in progress for $11.6M. The impairment loss attributable to the Company’s shareholder is $5.0M. See Note 7 to our consolidated financial statements included in this report. There can be no assurance that we will not in the future pursue other greenfield projects that would eventually turn out to be unsuccessful.

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.

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 hydroelectric power projects are connected generally have terms of one to five years. Some of these agreements provide for automatic renewal while others do not. 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, and “James” Tie Li, our President, 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.

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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

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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.

Although we entered into an Equity Purchase and Sale Agreement to sell the Yuanping hydroelectric power project in December 2011 and acquired only one hydroelectric power project in April 2011 and the remaining 10.0% equity interest in Fujian Wangkeng in January 2011, our business and operations historically have been expanding rapidly. The success of our growth strategy depends in part upon our ability to manage our 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.

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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.

All our electricity sales are 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, which is considered unlikely at least in the short term given the existing shortage in electric power generation capacity in China and the desire of the central government to reduce the adverse environmental problems caused by thermal power projects, 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

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a material adverse effect on our power generation and thus reduce our revenues. To date, however, other than external factors described elsewhere, such as limitations on transmission capacity in several instances, the only situation we have experienced when the dispatch centers accept less than the full amount of the power capable of being generated by our power projects is during brief periods of particularly heavy precipitation when our projects and others generate more power than the grids can physically accept and transmit. This occurs notwithstanding regulatory requirements that grids accept all power generated by renewable energy sources.

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 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.

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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 49.0% of China’s total power generation installed capacity by the end of 2010, according to the State Electricity Regulatory Commission, and the 28 largest power companies in China collectively operated 70.6%. 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 high price levels for fossil fuels, in particular, petroleum and natural gas, can enhance the price competitiveness of electricity from renewable energy sources. 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 a decline in prices of those fuels, 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

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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. During the year ended December 31, 2010, the portion of the loan of Wuliting that was not in compliance with certain debt covenants provisions as of December 31, 2009 was repaid in full and the remaining non-current portion of the loan was reclassified as long-term loan accordingly. The loan balances of Yinchuan that were not in compliance with certain debt covenants as of December 31, 2009 were not settled during the year ended December 31, 2010 and remained classified as current portion of long-term loans as of December 31, 2010. On December 14, 2010, our wholly-owned subsidiary Pingnan County Yuheng Hydroelectric Co., Ltd., or Yuheng, entered into a $13.5 million fixed-asset loan agreement with Bank of China, Fujian Branch. In February 2011, Yuheng used $2.0 million of the loan proceeds to provide an intercompany loan to Pingnan County Wangkeng Hydroelectric Co., Ltd, another of our subsidiaries. The intercompany loan constituted an event of default under the loan agreement, which prohibits use of loan proceeds for purposes other than replacing Yuheng’s debts from Agricultural Bank of China. According to the terms of the loan agreement, the breach would entitle Bank of China, Fujian Branch to various contractual remedies, including acceleration of the loan payment schedule. We discovered this breach in May 2011, notified Bank of China, Fujian Branch of the breach promptly, and reclassified the balance as current portion of long-term loans as of December 31, 2011. Our business, prospects and results of operations could be materially and adversely affected if our lenders accelerate our debt, decline to extend additional credit to us or otherwise take action that is unfavorable to us 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

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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 are 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 currently have a portfolio of twenty-six operating hydroelectric power projects. 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

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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 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, Binglangjiang II, Jinlong, Jintang, Jinwei, Jinjiu, and Dongguan hydroelectric power projects with a total area of approximately 2,571,106 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, Yingchuan, Xiaopengzu, Mangxian, Husahe Cascade III, Husahe Cascade IV, and Qianling sites are used as workshops, dams and reservoirs, and have a total area of approximately 10,344,218.98 m². 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

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land use rights may be significant and if we are required to pay these amounts our operating expenses could be significantly increased.

Furthermore, part of the land occupied by Jinwei hydroelectric project is leased allocated land. In accordance with relevant PRC laws and regulations, the lease of allocated land shall obtain approval from the competent land and resources authority. We have not procured such approval so far. Jinwei hydroelectric project is also leasing certain land from the local peasants which is collectively-owned. In accordance with relevant PRC laws and regulations, collectively-owned land shall not be leased for industrial use purpose such as hydropower generation. The total area for the aforesaid leased allocated land and collectively-owned land is approximately 435,288.4 m². In the event that we are required to cease such lease and/or any penalties are imposed on us, our business operations and financial condition could be materially and adversely affected.

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 sixteen of our twenty-six projects have passed the completion acceptance procedure and two projects, namely, Husahe Cascade IV and Mangxian projects cannot verify whether they have passed completion acceptance due to the loss of files caused by flood in 2004. The remaining eight 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 three will complete the procedure by the end of 2012. As for the remaining five projects in Fujian Province, we have been informed by relevant governmental authorities that Fujian Province has temporarily suspended the completion acceptance procedure for small hydroelectric projects and the time for resumption is uncertain. 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 President, Mary E. Fellows, our Executive Vice President, Chief Compliance Officer and Corporate Secretary, 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.

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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.

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud.

We are subject to reporting obligations under the U.S. securities laws. Under the current SEC regulations, we will be required to include a management report on internal control over financial reporting in our annual report, which contains management’s assessment of the effectiveness of our internal control over financial reporting. In addition, an independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting for the year ended December 31, 2011.

Our management has concluded that our internal control over financial reporting was effective as of December 31, 2011. See “Item 15. Control and Procedures.” Our independent registered public accounting firm has issued an attestation report, which has concluded that our internal control over financial reporting was effective in all material aspects as of December 31, 2011. However, if we fail to maintain effective internal control over financial reporting in the future, our management and our independent registered public accounting firm may not be able to conclude that we have effective internal control over financial reporting at a reasonable assurance level. Moreover, effective internal control over financial reporting is necessary for us to produce reliable financial reports and is important to help prevent fraud. As a result, our failure to maintain effective internal control over financial reporting could result in the loss of investor confidence in the reliability of our financial statements, which in turn could harm our business and negatively impact the trading price of our ADSs. Furthermore, we have incurred and expect to continue to incur considerable costs and devote significant management time and efforts and other resources to comply with Section 404 of the Sarbanes-Oxley Act.

Furthermore, effective internal control over financial reporting is necessary for us to produce reliable financial reports and is important to help us to manage the company effectively and prevent fraud. As a result, our failure to maintain effective internal control over financial reporting could result in a loss of investor confidence in the reliability of our financial statements, which in turn could harm our business and negatively impact the trading price of our ADSs.

Our auditor, like other independent registered public accounting firms operating in China, is not permitted to be subject to inspection by Public Company Accounting Oversight Board, and as such, investors may be deprived of the benefits of such inspection.

Our independent registered public accounting firm that issues the audit reports included in our annual reports filed with the SEC, as an auditor of companies that are traded publicly in the United States and a firm registered with the Public Company Accounting Oversight Board (United States), or PCAOB, is required by the laws of the United States to undergo regular inspections by PCAOB to assess its compliance with the laws of the United States and professional standards. Because our auditor is located in China, a jurisdiction where PCAOB is currently unable to conduct inspections

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without the approval of the PRC authorities, our auditor, like other independent registered public accounting firms operating in China, is currently not inspected by PCAOB.

Inspection of other firms that PCAOB has conducted outside of China have identified deficiencies in those firms’ audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future auditor quality. The inability of PCAOB to conduct inspections of independent registered public accounting firms operating in China makes it more difficult to evaluate the effectiveness of our auditor’s audit procedures or quality control procedure. As a result, investors may be deprived of the benefits of PCAOB inspections

Compliance with rules and requirements applicable to public companies is costly and complex and any failure by us to comply with these requirements on an ongoing basis could negatively affect investor confidence in us and cause the market price of our securities to decline.

As a 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 attract or retain 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. Any failure by us to comply with these requirements on an ongoing basis could expose us to increased risk of fraud and subject us to potential delisting from the NYSE, regulatory investigations and civil or criminal sanctions. In addition, we will incur additional costs associated with our public company reporting requirements.

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’s 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. It is uncertain whether various macroeconomic measures and monetary policies adopted by the PRC government will be effective in 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

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materially and adversely affected by government control over capital investments, and our ability to access bank financing has been and likely will continue to be adversely affected by changes in the PRC’s monetary policy.

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 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

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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.

On February 3, 2011, General Office of the PRC State Council issued the Circular of the General Office of the State Council on the Establishment of Security Review System Regarding Mergers and Acquisitions in China by Foreign Investors with effect in March, according to which, the acquisitions by foreign investors of domestic Chinese companies active in the certain sectors shall be subject to security review, including military enterprises, key agricultural products, key energy and resources, key infrastructure, key transportation services, key technologies and key equipment manufacturing activities that raise national security concerns, where the foreign investor might acquire actual control of the target Chinese company through the acquisition. This newly-issued regulation is unclear in certain aspects including the definition of key sectors which are expected to be further specified and therefore how it will be interpreted and implemented in practice remains to be seen. In case our future acquisitions fall within the security review scope, the consummation of such acquisitions could therefore be much more time-consuming and complex, and any required approval processes may delay or prevent the consummation of such acquisitions, and prevent us from attaining our business objectives.

The 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

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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 the price of 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, if any, 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, if any, 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,

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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. For each of our operating businesses that is a PRC domestic company, it may not distribute its after-tax profits to us if it has not already made contributions to its statutory reserve fund at a rate of no less than 10% of its net profit. A PRC domestic company is required to continue making contributions to its statutory 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 RMB3,416.8 million ($490.6 million) as of December 31, 2011, which amount exceeded our stockholders’ equity balance of $394.4 million as of that date. 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. 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.

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PRC regulation of direct investment and loans by offshore holding companies to PRC entities may delay or limit our ability 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 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 have been and are likely to continue to be volatile and fluctuate widely in response to factors beyond our control. 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. 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. 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.

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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 161,989,097 ordinary shares outstanding. In addition, there are outstanding options and warrants to purchase an aggregate of 34,593,885 ordinary shares, including options and warrants to purchase an aggregate of 34,593,885 ordinary shares immediately exercisable as of the date of this annual report.

All of the ADSs sold in our 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 applicable restrictions and limitations under Rule 144 of the Securities Act of 1933, all of our shares outstanding prior to our initial public offering are 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 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.

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.

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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.

Each of Vicis Capital Master Fund and CPI Ballpark Investments Ltd. owns a significant portion of our voting shares. See “Item 6E. Share Ownership.” Each of these shareholders is 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. We cannot assure you that we will not issue additional ordinary shares or securities convertible into ordinary shares to each of these or other shareholders. In the event that these shareholders increase their shareholdings in us, they may be in a even stronger position to exert influence over us.

As a company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the New York corporate governance listing standards. These practices may afford less protection to shareholders than they would enjoy if we complied fully with the New York Stock Exchange corporate governance listing standards.

As a Cayman Islands company listed on the New York Stock Exchange, we are subject to the NYSE corporate governance listing standards. However, NYSE rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from the NYSE corporate governance listing standards. We have in the past decided to follow Cayman Islands corporate governance practices instead of the NYSE listing standards. See “Item 16G. Corporate Governance.” If we decide to follow home country practices in the future, our shareholders may be afforded less protection than they otherwise would under the NYSE corporate governance listing standards applicable to U.S. domestic issuers.

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

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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. In addition, our board of directors is divided into three classes and only one class of directors is up for re-election at each annual meeting of shareholders.

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.

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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.

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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

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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;

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• 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;

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• 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;

• 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;

• 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 $85.99 million, and our ADSs and warrants started trading on the NYSE under the symbols “CHC” and “CHCWS”, respectively;

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• 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 RMB3 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 79.0% equity interest in Henan Wuyue Storage Power Generation Co., Ltd. for a total purchase price of RMB162.5 million ($24.4 million) and paid the first installment payment of RMB32.5 ($4.8 million) in cash;

• in April 2010, we acquired Yingjiang County Qinrui Husahe Hydropower Co., Ltd., which owns and operates Mangxian, Husahe Cascade III and Husahe Cascade IV hydroelectric power projects, with a total installed capacity of 18.7 MW in Yingjiang County, Yunnan province in the PRC for a purchase price of RMB115.0 million ($16.8 million), financed partially through cash on hand and through the assumption or refinancing of existing non-recourse debt;

• in June and August 2010, we acquired Fugong County Hengda Hydroelectric Development Co., Ltd. and Fugong Xineng Power Development Co. Ltd., respectively, which own and operate three operating projects including Aluhe, Zilenghe and Latudihe hydroelectric projects, totaling 54.1 MW in installed generating capacity, for a purchase price of RMB96.3 million ($14.2 million);

• in September 2010, we acquired Luquan Xiaopengzu Power Generation Co., Ltd., which owns and operates a 44 MW operating hydroelectric project in Luquan County, Yunnan province in the PRC for a purchase price of RMB150.0 million ($22.1 million);

• in December 2010, we acquired Shaowu City Jinling Power Generation Co., Ltd., which owns 55% equity interests in Shaowu City Jinlong Hydroelectric Co., Ltd., 74% in Shaowu City Jintang Hydroelectric Co., Ltd. and 74% in Shaowu City Jinwei Hydroelectric Co., Ltd. These four companies own and operate a 55.4 MW group of five operating projects in Fujian province, including Qianling&Jinjiu, Dongguan, Jinlong, Jinwei and Jintang hydroelectric projects, for a purchase price of RMB75.1 million ($11.3 million); and

• in January 2011, we completed our purchase the remaining 10% equity interests in Pingnan County Wangkeng Hydroelectric Co., Ltd. for a purchase price of RMB39.0 million ($5.9 million).

• in April 2011, we completed our purchase of Jinping Kanghong Hydroelectric Development Co., Ltd., which owns and operates Dazhaihe hydroelectric power project, a 15 MW project in Yunnan province for a purchase price of RMB59.0 million ($9.0 million).

• in December 2011, we entered into an Equity Purchase and Sale agreement to sell Pingnan County Yuanping Hydroelectric Co., Ltd., which owns and operates Yuanping hydroelectric power project, a 16 MW project located in Fujian province, for total consideration of $22.2 million, including the assumption of debt by a third-party buyer.

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 Bldg A #2105, Ping’An International Financial Center, No.3 Xinyuan South Road, Chaoyang District, Beijing, PRC 100027 and our telephone number at such location is (86-10) 6408-2341. 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, 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.

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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.

Our revenues to date have derived from the sale of electricity generated by our small hydroelectric power projects to the southern power grid, and 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.

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We wholly own twenty-three operating hydroelectric power projects (excluding the Yuanping hydroelectric project, which was sold in March 2012) and have a controlling interest in three additional operating hydroelectric power projects and one pumped storage project, Wuyue. Wuyue was deemed an impaired asset as of December 31, 2011. 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 advantage of the opportunities present in the PRC hydropower market. Installed capacity (including Yuanping) 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, 548.8 MW at December 31, 2010, and 563.8 MW at December 31, 2011.

In December 2011, we entered into an Equity Purchase and Sale Agreement with a third-party buyer to sell Pingnan County Yuanping Hydroelectric Co., Ltd., which owns and operates Yuanping hydroelectric power project, a 16.0 MW project located in Fujian province, for a total consideration of $22.2 million, including the assumption of debt by the buyer. The transaction was completed on March 2, 2012. Its results of operations have been classified as discontinued operations for all periods presented.

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

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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 (none presently owned). 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.

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

Project or Expansion and Location	Actual or Expected Date in Service	Approved Tariff(1) (RMB/kWh)	Installed Capacity (MW)			Electricity Sold (kWh)								Effective Utilization Rate (%)(11)						Design Utilization (%)		Type
						2009			2010			2011		2009		2010		2011
Completed Projects
Binglangjiang I, Yunnan	January 1988	0.227 January to May; 0.177 June to December		21.0			95,514,582			94,591,565			86,994,684		51.9		51.4		47.3		45.0	A
Binglangjiang II, Yunnan	September 2009	0.227 January to May 0.177 June to December		20.0			29,141,455			64,041,599			92,596,193		51.5		36.6		52.9		50.0	A
Liyuan, Sichuan	August 2006	0.29		12.0			23,435,555			16,217,714			13,096,779		22.3		15.4		12.5		42.0	B
Shapulong(2), Zhejiang	June 2001	0.535 peak hours; 0.268 off-peak		25.0			40,630,896	(6)		64,624,002	(6)		36,611,340		18.6		29.5		14.4		18.6	C
Yingchuan, Zhejiang	April 2002	0.535 peak hours; 0.268 off-peak		40.0			107,225,642			138,329,822			101,896,872		30.6		39.5		29.1		31.0	C
Wuliting, Zhejiang	October 2007	0.535 peak hours; 0.268 off-peak		42.0			92,554,400			148,943,520			92,118,840		25.2		40.5		25.0		33.0	B
Ruiyang, Zhejiang	December 2003	0.535 peak hours; 0.268 off-peak		32.0			62,453,774			77,819,280			49,810,200		22.3		27.8		17.8		24.2	C
Jiulongshan, Zhejiang		0.535 peak hours 0.268 off-peak		37.6			73,964,924			69,618,958			67,157,924		20.0		21.1		20.4		20.7	C/A (9)
Zhougongyuan, Zhejiang	March 2009	0.535 peak hours; 0.268 off-peak		16.0			2,934,316			41,837,946			39,827,794		12.5		29.9		28.4		29.0	C/A (9)
Banzhu, Fujian	November 1998	0.36		45.0	(6)		126,659,753	(7)		185,287,772			112,241,606		32.1		47.0		28.5		42.2	B
Wangkeng(2), Fujian	July 2004	0.31		40.0	(6)		108,369,852	(8)		183,820,955	(8)		96,398,922		30.9		52.5		27.5		42.5	C
Yuanping(3), Fujian	March 2007	0.29		16.0			44,316,824			82,908,637			42,273,514		31.6		59.2		30.2		39.0	A
Yuheng(4), Fujian	November 1999	0.29		30.0			69,284,988			134,173,611			69,593,044		26.4		51.1		26.5		42.8	A
Husahe, Yunnan	March 1995	0.227 January to May; 0.177 June to December		18.7			61,430,886			66,801,125	(10)		67,753,458		37.5		57.9		41.4		45.1	A
Aluhe, Yunnan	June 2006	0.20 November to April; 0.16 May to October		10.0			21,016,068			13,950,979	(10)		29,478,703		24.0		30.1		33.7		54.3	A
Zilenghe, Yunnan	October 2007	0.20 November to April; 0.16 May to October		25.2			60,618,360			46,546,038	(10)		86,162,474		27.5		39.9		39.0		60.4	A
Latudi, Yunnan	February 2009	0.20 November to April; 0.16 May to October		18.9			30,343,420			21,312,493	(10)		45,296,415		18.3		34.0		27.4		46.1	A

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Project or Expansion and Location	Actual or Expected Date in Service	Approved Tariff(1) (RMB/kWh)	Installed Capacity (MW)		Electricity Sold (kWh)							Effective Utilization Rate (%)(13)						Design Utilization (%)	Type
					2009		2010			2011		2009		2010		2011
Xiaopengzu, Yunnan	October 2009	0.247 January to April, and December; 0.222 May and November; 0.197 June to October		44.0		26,262,657		29,916,026	(10)		68,255,227		27.0		24.6		17.7	46.0-50.0	C
Qianling(11), Fujian	July 1984	0.24		10.0		34,279,560		42,760,900			27,297,172		39.1		48.8		31.2	40.0	B
Jinjiu(11), Fujian	October 2004	0.28		3.0		15,561,700		16,448,390			11,592,491		59.2		62.6		44.1	52.0	B
Dongguan(11), Fujian	November 2004	0.28		4.8		9,761,600		7,328,800			8,147,040		23.2		17.4		19.4	48.1	B
Jinlong(11), Fujian	November 2005	0.30		10.0		37,243,920		44,458,470			29,761,388		42.5		50.8		34.0	42.7	B
Jintang(11), Fujian	October 2006	0.26		11.6		36,111,460		42,626,430			29,475,704		35.5		41.9		29.0	40.5	B
Jinwei(11), Fujian	July 2009	0.30		16.0		18,437,720		53,400,480			37,846,120		27.4		38.1		27.0	41.1	B
Dazhaihe(12), Yunnan	September 2009	0.23 January to April, and December; 0.18 May and November; 0.13 June to October		15.0		45,805,300		37,600,400			32,494,133		34.9		28.6		34.1	49.1	A
		Total:		563.8

(1)	We are required to withhold VAT due on our power dispatched at a rate of 6.0%, or in the case of two of our projects, of 17.0%, depending on the size and location of the plant. Approved tariffs presented above are gross of VAT. Peak hours are generally from 8 a.m. to 10 p.m. For Binglangjiang II, the effective tariff stated was effective from January 1, 2010. In 2009, from September 4 to November 3, the effective tariff was 0.12 and from November 4 to December 31 was 0.17. Effective from May 1, 2010, the tariff for Binglangjiang I, II and Husahe was increased from 0.22 to 0.227 (January to May) and from 0.17 to 0.177 (June to December).
(2)	We have owned 100.0% of the equity interest in Shapulong since August 2009. We have owned 90.0% of the equity interest in Wangkeng since October 2008. We have owned 100.0% of the equity interest in Wangkeng since January 2011.
(3)	In August 2009, the Ningde Pricing Bureau, the regional pricing bureau in Fujian province, approved a unit price per kWh of RMB0.29, inclusive of VAT, for electricity transmitted by Yuanping to the power grid controlled and owned by the provincial grid company prior to July 8, 2009. The unit price per kWh of RMB0.29 will continue to be in effect until the regional pricing bureau approves a new unit price per kWh.
(4)	Currently, Yuheng is receiving RMB0.29 per kWh for electricity supplied to Fujian Province Pingnan County Power Supply Co., Ltd., pursuant to the power purchase agreement entered into between Yuheng and Fujian Province Pingnan County Power Supply Co., Ltd. on December 28, 2008, which is valid until December 28, 2009. However, pursuant to the Interim Agreement of Conformity of Power Purchase and Supply in Rongping Supply Area entered into by Yuheng, 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, the tariff rate of RMB0.181 per kWh has been set for the supply of an aggregate volume of 300 million kWh of electricity by Yuheng to Fujian Province (Pingnan) Rongping Chemical Industry Co., Ltd. through Fujian Province Pingnan County Power Supply Co., Ltd. for a contractual term of forty-two months ending in October 2010. Therefore, for electricity 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

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	Chemical Industry Co., Ltd. until the earlier of reaching the cumulative volume of 300.0 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 RMB30.0 million ($4.4 million) to Fujian Province (Pingnan) Rongping Chemical Industry Co., Ltd. to guarantee the supply of electricity of an aggregate volume of 300.0 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 300.0 million kWh over the contractual term.
(5)	Our aggregate installed capacity information presented in this annual report includes, as of December 31, 2008, the installed capacities of Shapulong, Banzhu and Wangkeng, and as of December 31, 2009, the installed capacity of Wangkeng, although as of such respective dates, our equity interest in Shapulong, Banzhu and Wangkeng were 50.0%, 90.0% and 90.0%, respectively.
(6)	We held a 50.0% equity interest in Shapulong in 2008. On an equity interest basis, we would be entitled to 21,646,029 kWh and 21,154,079 kWh of electricity sold for 2007 and 2008, respectively, had we owned our equity interest in Shapulong for those periods. Effective utilization rates for the plant do not reflect our equity interest in the plant, but the operation of the plant as a whole. We have owned 100.0% of the equity interest in Shapulong since August 2009.
(7)	We have held a 100.0% equity interest in Banzhu since March 2009, but we only held a 90.0% equity interest in Banzhu as of December 31, 2008. On an equity interest basis, we would be entitled to 152,183,576 kWh and 139,982,769 kWh of electricity sold for 2007 and 2008, respectively, had we owned our 90.0% equity interest in Banzhu for those periods. Effective utilization rates for the plant do not reflect our equity interest in the plant, but the operation of the plant as a whole.
(8)	We held a 90.0% interest in Wangkeng in 2008, 2009 and 2010. On an equity basis, we would be entitled to 116,296,125 kWh, 97,532,867 kWh and 165,438,860 kWh of electricity sold for 2008, 2009 and 2010, respectively, had we owned our equity interest in Wangkeng for those periods. Effective utilization rates for the plant do not reflect our equity interest in the plant, but the operation of the plant as a whole.
(9)	The Zhougongyuan project consists of three separate hydropower plants in series on the same river. The upstream hydropower plant is an impoundment dam reservoir hydropower plant (type C) and the other two in series downstream are run-of-the-river diversion dam hydropower plants (type A). Zhougongyuan project was split into two subsidiary projects in December 2009: Jiulongshan project and Zhougongyuan project.
(10)	The acquisition of the Husahe, Aluhe, Zilenghe, Latudi and Xiaopengzu hydroelectric projects was made during 2010. The Electricity Sold and Effective Utilization Rate for 2010 represents the period during which the projects were under the Company’s control. Operating data are on a full year basis for 2009 and 2011.
(11)	We completed our acquisition of Shaowu City Jinling Hydropower Co. Ltd., the owner of the Qianling, Jinjiu and Dongguan hydroelectric power project, together with Jinling’s 55.0% controlling interest in Shaowu City Jinlong Hydropower Co. Ltd., the owner of the Jinlong project, Jinling’s 74.0% controlling interest in Shaowu City Jintang Hydropower Co. Ltd., the owner of the Jintang project, and Jinling’s 74.0% controlling interest in Shaowu City Jinwei Hydropower Co. Ltd., the owner of the Jinwei on December 30, 2010. As a result, we are not entitled to the revenue of these projects for the year ended December 31, 2010. In the future, we would be entitled to the electricity production and revenue of Jinlong, Jintang and Jinwei on an equity basis of 55.0%, 74.0% and 74.0%, respectively.
(12)	We completed our acquisition of Jinping Kanghong Hydropower Development Co., Ltd., or the Dazhaihe Hydroelectric power project, in April 2011. 2011 data for Dazhaihe are for the period from April 10, 2011 to December 31, 2011.
(13)	See Exhibit 15.1 to this annual report for detailed calculations of effective utilization rates.

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Completed Projects

Yunnan Province

Binglangjiang I. Binglangjiang I is a run-of-the-river, diversion-type hydroelectric facility 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 45.0% 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 51.9%, 51.4% and 47.3% in 2009, 2010 and 2011, respectively.

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. The VAT for this plant is 6.0%. On August 11, 2010, Yunnan Huabang Electric Power Development Co., Ltd. entered into a new grid connection and dispatching agreement with Dehong Power Supply Co., Ltd. for Binglangjiang I and II which is valid till new agreement is signed. On December 29, 2010, Yunnan Huabang Electric Power Development Co., Ltd. entered into a supplemental agreement on the power purchase and sale contract for the calendar year of 2011 with Dehong Power Supply Co., Ltd. with respect to Binglangjiang I, pursuant to which, Dehong Power Supply Co., Ltd. agrees to pay RMB0.227 per kWh (January to May) and RMB0.177 per kWh (June to December). The existing agreement with Dehong Power Supply Co., Ltd. has been renewed in the first quarter of 2012.

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 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 I. 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 50.0%. The effective utilization rate for Binglangjiang II was 36.6% and 52.9% in 2010 and 2011, respectively.

The combined effective utilization rate for Binglangjiang I and II was 44.2% and 50.0% for 2010 and 2011, respectively. We have applied for a tariff of RMB0.12 per kWh during the commissioning period 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

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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. On August 11, 2010, Yunnan Huabang Electric Power Development Co., Ltd. entered into a new grid connection and dispatching agreement with Dehong Power Supply Co., Ltd. for Binglangjiang I and II which is valid till new agreement is signed. On December 29, 2010, Yunnan Huabang Electric Power Development Co., Ltd. entered into a supplemental agreement on the power purchase and sale contract for the calendar year of 2011 with Dehong Power Supply Co., Ltd. with respect to Binglangjiang II, pursuant to which, Dehong Power Supply Co., Ltd. agrees to pay RMB0.227 per kWh (January to May) and RMB0.177 per KWh (June to December). The existing agreement with Dehong Power Supply Co., Ltd. has been renewed in the first quarter of 2012.

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 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 Yingjiang County, Dehong Prefecture, Yunnan province and consists of three independent projects, Husahe 3, Husahe 4 and Mangxian, in a series on the Husa River with a drainage basin of 262.6 km², a total installed capacity of 18.7 MW and a combined Design utilization rate of 45.1%. The effective utilization rate for this three facility complex was 37.5%, 57.9%, and 41.4% for the year 2009, 2010, and 2011, respectfully.

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 capacity utilization rate is 74.0%.

Husahe 4 is a 14.0 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 at 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 41.4%. During periods of high water flows, the overflow from Husahe 4 is directed to the 1.5 MW Mangxian Hydropower Station, which has a utilization rate of 15.0%.

Mangxian is a 1.5 MW small overflow hydroelectric power project which produces power from flows which exceed the capacity of Husahe 4.

On August 11, 2010, Yingjiang County Qinrui Husahe Hydropower Co., Ltd. entered into a grid connection and dispatching agreement with Dehong Power Supply Co., Ltd. for each of Husahe 3, Husahe 4 and Mangxian, which is valid till a new agreement is signed. On December 29, 2010, Yingjiang County Qinrui Husahe Hydropower Co., Ltd. entered into a supplemental agreement on power purchase and sale contract for the calendar year of 2011, pursuant to which, Dehong Power Supply Co., Ltd. agrees to pay RMB0.227 per KWh (January to May) and RMB0.177 per KWh (June to December). ). The existing agreement with Dehong Power Supply Co., Ltd. has been renewed in the first quarter of 2012.

Xiaopengzu. Xiaopengzu is an impoundment reservoir type of hydroelectric power project commissioned in October 2009 with a design capacity of 44.0 MW and an annual design utilization rate which is expected to range from 46.0% to 50.0% based upon completion and the operations of the Dianchi Reservoir Diversion Project, a water project unrelated to Xiaopengzu which is expected to influence the amount of water annually that flows to Xiaopengzu, and the other hydroelectric facilities downstream. The effective utilization rate was 27.0%, 24.6% and 17.7% in 2009, 2010 and 2011, respectively, reflecting normal facility operations and below average precipitation in all three years.

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Luquan Xiaopengzu Power Generation Corporation entered into a power purchase and sale agreement effective from January 1, 2011 to December 31, 2011, pursuant to which the Yunnan Grid Corporation agrees to pay Xiaopengzu tariff on a seasonal basis. In year 2011, Xiaopengzu received a tariff of RMB0.247 per kWh during the dry season from January to April and in December and RMB0.222 per kWh during the normal season in May and November, and RMB0.197 per kWh during the rainy season from June to October. The existing agreement has been renewed in the first quarter of 2012. The VAT for this plant is 6.0%.

Xiaopengzu is located on the Pudu River in the Luquan County, Kunming City in Yunnan Province. Xiaopengzu is a four-component complex consisting of a concrete impoundment dam, tunnel and penstock, powerhouse and substation. The powerhouse contains two 22.0 MW vertical Francis turbine generators. The area of the powerhouse building is 697 m². The area of the land the project utilizes is 8,162 km² including the drainage basin.

Aluhe. Aluhe is a high head run-of-the-river diversion-type hydroelectric power project located on the Alu River, commissioned in April 2007 with a design capacity of 10.0 MW and an annual design utilization rate of 54.3%. The effective utilization rate was 24.0%, 30.1% and 33.7% in 2009, 2010 and 2011, respectively. The lower than design utilization rate in 2009, 2010 and 2011 was the result of intermittent grid availability and lower than normal precipitation.

Fugong County Hengda Hydroelectric Development Co., Ltd. entered into a power purchase and sale agreement with Yunnan Nujiang Grid Co., Ltd. with respect to the Aluhe hydroelectric project, effective from January 1, 2010 to December 31, 2010, pursuant to which Yunnan Nujiang Grid Co., Ltd. agrees to pay Aluhe tariff on a seasonal basis. In year 2010, Aluhe received a tariff of RMB0.20 per kWh during the dry season from November to April, and RMB0.16 per kWh during the rainy season from May to October. The existing agreement will remain effective until both parties agree to its modification or termination. The VAT for this plant is 6.0%.

Aluhe is a four-component complex consisting of concrete diversions, tunnels, pipeline and penstock, powerhouse and substation. The powerhouse contains two 5.0 MW horizontal Pelton turbines coupled to 6.3 MW generators with effective capacity of 10.0 MW manufactured by Lingling Hengyuan Hydropower Equipments Co., Ltd. The area of the powerhouse building that contains the plant is 450 m². The area of the land the project utilizes is 23 km² including the drainage basin.

Zilenghe. Zilenghe is a high head run-of-the-river, diversion-type hydroelectric power project commissioned in October 2007 with a design capacity of 25.2 MW and an annual design utilization rate of 60.4%. The effective utilization rate was 27.5%, 39.9% and 39.0% in 2009, 2010 and 2011, respectively. The lower than the design utilization rate in all three years was attributable to intermittent grid availability and lower than normal precipitation.

Fugong County Hengda Hydroelectric Development Co., Ltd. entered into a power purchase and sale agreement with Yunnan Nujiang Grid Co., Ltd. with respect to Zilenghe hydroelectric project, effective from January 1, 2010 to December 31, 2010, pursuant to which the Yunnan Nujiang Grid Co., Ltd. agrees to pay Zilenghe tariff on a seasonal basis. In year 2010, Zilenghe received a tariff of RMB0.20 per kWh during the dry season from November to April, and RMB0.16 per kWh during the rainy season from May to October. The existing agreement will remain effective until both parties agree to its modification or termination. The VAT for this plant is 6.0%.

Zilenghe is a four-component complex consisting of concrete diversion dams, tunnels, pipeline and penstock, powerhouse and substation. The powerhouse contains four 6.3 MW horizontal Pelton turbine generators manufactured by Lingling Hengyuan Hydropower Equipment Co., Ltd. The area of the powerhouse building is 600 m². The area of the land the project utilizes is 1,942 km² including the drainage basin.

Latudi. Latudi Hydropower Station is located on the Latudi River in Fugong County, Nujiang Prefecture, Yunnan Province. Latudi is a high head run of the river diversion type project commissioned in February 2009 with a design capacity of 18.9 MW and an annual design utilization rate of 46.1%. The effective utilization rate was 18.3%, 34.0% and 27.4% in 2009, 2010 and 2011,

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respectively. The lower than the design utilization rate in all three years was attributable to intermittent grid availability and lower than normal precipitation.

Fugong Xineng Power Development Co., Ltd. entered into a power purchase and sale agreement with Yunnan Nujiang Grid Co., Ltd. effective from January 1, 2010 to December 31, 2010, pursuant to which Yunnan Nujiang Grid Co., Ltd. agrees to pay Latudi tariff on a seasonal basis. In year 2010, Latudi received a tariff of RMB0.20 per kWh during the dry season from November to April, and RMB0.16 per kWh during the rainy season from May to October. The existing agreement remains effective until both parties agree to its modification or termination. The VAT for this plant is 6.0%.

Latudi Hydropower Station is a four-component complex consisting of two concrete diversion dams, pipelines and penstock, powerhouse and substation. The powerhouse contains three 6.3 MW horizontal Pelton turbine generators manufactured by Lingling Hengyuan Hydropower Equipment Co., Ltd. The area of the powerhouse building is 500 m². The area of the land the project utilizes is 28 km² including the drainage basin.

Dazhaihe. Dazhaihe is a high head run of the river hydro project located in the lower stream of the Dazhai River in Manhao town, Jinping county, Honghe prefecture. The project was commissioned in September 2009 with a design capacity of 15.0MW and an annual design utilization rate of 49.1%. Jinping Kanghong Hydropower Development Co., Ltd entered into a power purchase and sale agreement effective from November 10, 2008 to November 10, 2009, pursuant to which the Yunnan Grid Corporation Honghe Power Supply Bureau agrees to pay Dazhaihe tariff on a seasonal basis. The effective period of the agreement was extended to December 31, 2011, and is renewable automatically unless both parties agree to terminate. In year 2011, Dazhaihe received a tariff of RMB0.23 per kWh during the dry season from January to April and in December and RMB0.18 per kWh during the normal season in May and November, and RMB0.13 per kWh during the rainy season from June to October. The VAT for this plant is 6.0%.

Dazhaihe is a four component single-purpose power generation construction. The facility consists of diversion structure, tunnel, penstock, surge shaft, powerhouse and sub station. The Dazhai river is in the Honghe drainage basin, and is a branch of the Honghe River. The size of the drainage area above the water diversion is 50.9 KM².

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 22.3%, 15.4% and 12.5% in 2009, 2010 and 2011, respectively. The effective utilization rates for Liyuan in 2009, 2010 and 2011 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 18, 2011, which is valid until May 17, 2012, 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 17, 2010, 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 17, 2010 until May 17, 2011, 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

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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 18.6%. The effective utilization rate was 18.6%, 29.5% and 14.4% in 2009, 2010 and 2011, respectively reflecting normal operations and natural fluctuations in precipitation.

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.) We are in the process of renewing the existing agreement and expect to renew the agreement by the end of second quarter 2012. 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 powerhouse 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 31.0%. The effective utilization rates were 30.6%, 39.5% and 29.1% in 2009, 2010 and 2011, respectively, reflecting normal operations and natural fluctuation in precipitation.

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 October 2008 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 October 1, 2008 to September 30, 2011 Without disagreement from either party, the agreement will be automatically renewed every two years, pursuant to which the Lishui Electric Power Bureau is paying Yingchuan 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%.

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 powerhouse is 489.2 m². The

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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 25.2%, 40.5% and 25.0% in 2009, 2010 and 2011, respectively. The 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. The effective utilization rates in 2010 and 2011 were attributable to normal operations coupled with normal fluctuations in precipitation levels.

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. According to the terms of such agreement, the agreement remains effective after the initial term, unless both parties agree to terminate. In October 2008 Wuliting entered into a grid economic agreement with Lishui Electric Power Bureau. Without disagreement from either party, the agreement will be automatically renewed every two years, 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 gated structure, 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 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 24.2%. The effective utilization rate was 22.3%, 27.8% and 17.8% in 2009, 2010 and 2011, respectively. The lower than design capacity utilization in 2009 and 2011 was attributable to normal operations and lower than normal precipitation. The higher than design capacity utilization rate in 2010 was attributable to normal operations coupled with higher than average precipitation.

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. Without disagreement from either party, the agreement will be automatically renewed every two years, pursuant to which Lishui Electric Power Bureau is currently paying Ruiyang a tariff of RMB0.535 per kWh during peak hours and RMB0.268 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 its modification or termination. 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 16.0 MW vertical Francis turbine generators manufactured by Kvaerner Hangzhou Power Equipment Co., Ltd. The area of the powerhouse structure is 892 m². The area of the land the project utilizes is 188 km² including drainage basin. We acquired Ruiyang in August 2009.

Jiulongshan and Zhougongyuan. The Jiulongshan-Zhougongyuan Hydro Complex consists of Jiulongshan I, a 25.0 MW impoundment dam facility, Jiulongshan II, a 12.6 MW diversion facility, and

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Zhougongyuan, a 16.0 MW diversion facility. Each of the three facilities are located on a tributary of upper Wuxijiang River in Suichang County, Zhejiang Province.

The three projects have a total design capacity of 53.6 MW and a combined annual design utilization rate of 25.0%. The complex of three facilities was commissioned during May through December 2009. The effective utilization rate was 19% for 2009 reflecting normal precipitation levels during the commission period of the three facilities. The effective utilization rate was 25% and 23.6% in 2010 and 2011, respectively, reflecting normal operations. 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 was valid until April 2010. Without disagreement from either party, the agreement automatically renews every year, 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. On July 16, 2010, Suichang County Jiulongshan Hydroelectric Development Co., Ltd. and Suichang County Zhougongyuan Hydroelectric Development Co., Ltd. respectively entered into a power purchase and sale contract with Lishui Electric Power Bureau for Jiulongshan I (Zhougongyuan I), Jiulongshan II (Zhougongyuan II), and Zhougongyuan, which are valid from July 1, 2010 to June 30, 2013, pursuant to which Lishui Electric Power Bureau, part of the State Grid, is paying 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.

Each of the facilities consists of a concrete dam, tunnel, penstock, powerhouse and substation. The Zhougongyuan I powerhouse contains two 12.5 MW vertical Francis type turbine generators, the Zhougongyuan II powerhouse contains two 6.3 MW vertical Francis type turbines generators and the 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 powerhouses 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 42.2%. The effective utilization rate was 32.1%, 47.0% and 28.5% in 2009, 2010 and 2011, respectively, reflecting normal operations and natural fluctuation in precipitation levels.

On September 30, 2010, Sanming Zhongyin Banzhu Hydroelectric Co., Ltd. entered into a grid connection and dispatching agreement with Fujian Province Electric Power Co., Ltd. Sanming Power Industry Bureau which is valid for five years from the execution date and without disagreement from either party, the agreement will be automatically renewed on an annual basis. On August 18, 2008, Sanming Zhongyin Banzhu Hydroelectric Co., Ltd. entered into a power purchase and sale agreement with Fujian Province Electric Power Co., Ltd. which was valid until December 31, 2010 Without disagreement from either party, the agreement will be automatically renewed every three years, pursuant to which, Fujian Province Electric Power Co., Ltd. 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 full gated structure, powerhouse, spill way and ship lock integrated into one structure, and substation. The powerhouse

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contains three 15.0 MW horizontal bulb turbines manufactured by Hangzhou Generation Equipment Manufacturing Co., Ltd. The area of the structure 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 42.5%. The effective utilization rate was 30.9%, 52.5% and 27.5% in 2009, 2010 and 2011, respectively, 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. On September 30, 2010, Pingnan County Wangkeng Hydroelectric Co., Ltd. entered into a new grid connection and dispatching agreement with Fujian Province Electric Power Co., Ltd. Ningde Power Industry Bureau which is valid until December 31, 2015. The agreement will remain effective unless both parties agree to its modification or termination. On June 28, 2010, Pingnan County Wangkeng Hydroelectric Co., Ltd. entered into a new power purchase and sale contract with Fujian Province Electric Power Co., Ltd. which is valid till March 31, 2011. Without disagreement from either party, the agreement will be automatically renewed every three years, The VAT for this project 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 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.

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 42.8%. The effective utilization rate was 26.4%, 51.1% and 26.5% in 2009, 2010 and 2011, respectively, reflecting normal operations and natural fluctuation in precipitation levels.

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. The agreement will remain effective unless both parties agree to its modification or termination. 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 the agreement it 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

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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. In May 2010, the contract between Yuheng and Fujian Province (Pingnan) Rongping Chemical Industry Co., Ltd. was settled when the cumulative volume of 300 million kWh of electricity supply was reached. On November 29, 2011, Pingnan County Yuheng Hydropower Co., Ltd. entered into a power purchase agreement with Fujian Province Pingnan County Power Supply Co., Ltd., which will expire on November 30, 2013. 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 powerhouse is 546 m². The area of the land the project utilizes is 671 km² including the drainage basin. We acquired Yuheng in October 2008.

Jinlong. Jinlong is a low head run of the river hydroelectric power facility commissioned in November 2005 with an installed capacity of 10 MW and an annual design utilization rate of 42.7%. The effective utilization rate was 42.5%, 50.8% and 34.0% in 2009, 2010 and 2011, respectively, reflecting normal operations and natural fluctuations in precipitation levels.

Shaowu City Jinlong Hydroelectric Co., Ltd. entered into a power purchase agreement with Fujian Province Shaowu Power Supply Bureau on March 2007, which is valid until March 31, 2009, pursuant to which Fujian Province Shaowu Power Supply Bureau agrees to pay a tariff of RMB0.30 per kWh for supplying electricity and the tariff was approved by the regional pricing bureau. The VAT for this plant is 6.0%. According to the terms of such agreement, the agreement remains effective unless any party has disagreement on the terms of the agreement, and its term extends to the expiry of the operation period.

Jinlong is located on the on the Fu Tun Xi River in northwest Fujian province in Shaowu City. Jinlong is a low head run of the river gated complex with the powerhouse incorporated into the diversion structure on the right bank. The powerhouse contains two 5.0 MW horizontal fully regulated bulb turbine generators manufactured by Fu Chung Jiang Hydraulic Turbine Factory.

Jintang. Jintang is a low head run of the river hydroelectric power facility commissioned in October 2006 with a design capacity of 11.6 MW and an annual design utilization rate of 40.5%. The effective utilization rate was 35.5%, 41.9% and 29.0% in 2009, 2010 and 2011, respectively, reflecting normal operations and natural fluctuation in precipitation levels.

Shaowu City Jintang Hydroelectric Co., Ltd. entered into a power purchase agreement with Fujian Province Shaowu Power Supply Bureau on December 2008, which is valid until November 31, 2011, pursuant to which Fujian Province Shaowu Power Supply Bureau agrees to pay a tariff of no more than RMB0.30 per kWh for supplying electricity. Fujian Provincial Pricing Bureau has approved an interim tariff of RMB0.26 per kWh. The VAT for this plant is 6.0%. According to the terms of such agreement, the agreement remains effective unless any party has disagreement on the terms of the agreement, and its term extends to the expiry of the operation period.

Jintang is located on the Futunxi River in the northwest of Fujian province in Shaowu City. Jintang is a low head run of the river gated complex with the powerhouse incorporated into the

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diversion structure on the right bank. The powerhouse contains two 5.8 MW horizontal fully regulated bulb turbine generators manufactured by Dong Feng Hydroelectric Machinery Works.

Jinling. Jinling is located in Shaowu City, Fujian province and consists of three projects, Qianling, Jinjiu and Dongguan. Qianling and Jinjiu are incorporated into the same powerhouse and gate structure on the Futunxi River. The entire complex of Qianling and Jinjiu has a total design capacity of 13.0 MW. Dongguan has a design capacity of 4.8 MW.

Shaowu City Jinling Power Generation Co., Ltd. entered into a power purchase agreement with Fujian Province Shaowu Power Supply Bureau for each of Qianling, Jinjiu and Dongguan hydroelectric power projects in March 2007, which is valid until March 31, 2009, according to which Fujian Province Shaowu Power Supply Bureau agrees to pay a tariff of not more than RMB0.24 per KWh for Qianling, a tariff of not more than RMB0.28 per KWh for Jinjiu and a tariff of RMB0.28 per KWh for Dongguan. The approved tariff for Qianling is RMB0.24 per KWh and for Jinjiu RMB0.28 per KWh. The VAT for these three plants is 6.0%. According to the terms of such agreement, the agreement remains effective unless any party has disagreement on the terms of the agreement, and the its term extends to the expiry of the operation period.

Qianling. The Qianling hydroelectric facility is a low head run of the river hydroelectric power facility commissioned in July 1984 with a design capacity of 10.0 MW and an annual design utilization rate of 52.0% reduced to 40.0% with diversion of water to the Jinjiu facility. The effective utilization rate was 39.1%, 48.8% and 31.2% in 2009, 2010 and 2011, respectively, reflecting normal operations coupled with natural fluctuation in precipitation.

The Qianling hydropower complex is located on the on the Fu Tun Xi River in northwest Fujian province in Shaowu City. Qianling is a low head run of the river gated complex with the powerhouse incorporated into the diversion structure on the right bank. The powerhouse contains eight 1.25 MW vertical partially regulated kaplan turbine generators manufactured by Dong Feng Hydroelectric Turbine Factory.

Jinjiu. The Jinjiu hydroelectric facility is a low head run of the river hydroelectric power facility commissioned in October 2004 with a design capacity of 3.0 MW and an annual design utilization rate of 52.0%. The effective utilization rate was 59.2%, 62.6% and 44.1% in 2009, 2010 and 2011, respectively. The higher than design utilization rate was attributable to operator preference in optimizing performance and water allocation between Jinjiu and Qianling.

The Jinjiu hydropower facility is located on the Fu Tun Xi River in northwest Fujian province in Shaowu City. Jinjiu has a single 3.0 MW fully regulated vertical kaplan style turbine that is incorporated into the Qianling complex which is a low head run of the river gated complex with the powerhouse incorporated into the diversion structure. The powerhouse contains the Qianling eight 1.25 MW vertical partially regulated kaplan turbine generators manufactured by Dong Feng Hydroelectric Turbine Factory plus the single Jinjiu 3.0 MW vertical kaplan turbine generator manufactured by Nanping Hydroelectric Turbine Generator company.

Dongguan. The Dongguan hydroelectric facility is a low head run of the river hydroelectric power facility commissioned in November 2004 with a design capacity of 4.8 MW and an annual design utilization rate of 48.1%. The effective utilization rate was 23.2%, 17.4% and 19.4% in 2009, 2010 and 2011, respectively. Effective utilization has been lower than design as water levels at the dam were reduced to accommodate construction activity immediately upstream unrelated to the project.

Dongguan is located on the Fu Tun Xi River in northwest Fujian province in Shaowu City. Dongguan is a low head run of the river gated complex with the powerhouse incorporated into the diversion structure at the left bank. The powerhouse contains three 1.6 MW horizontal fully regulated bulb turbine generators.

Jinwei. Jinwei is a low head run of the river hydroelectric power facility commissioned in July 2009 with a design capacity of 16.0 MW and an annual design utilization rate of 41.1%. The effective utilization rate was 27.4%, 38.1% and 27.0% in 2009, 2010 and 2011, respectively. Effective utilization has been lower than design in 2009 and 2011 reflecting facility commissioning in July 2009 and lower than normal precipitation in 2011. The facility has a restricted intake which will prevent achievement of design utilization by approximately 10.0% until remedied. The company currently is

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not planning on implementing these remedial plans until after the 2012 operating season at the earliest.

Shaowu City Jinwei Hydroelectric Co., Ltd. entered into a power purchase agreement with Fujian Province Nanping Power Bureau on January 2007, which is valid until December 31, 2009, pursuant to which Fujian Province Nanping Power Bureau agrees to pay a tariff of RMB0.30 per kWh for supplying electricity. The VAT for this plant is 6.0%. According to the terms of such agreement, the agreement remains effective unless any party has disagreement on the terms of the agreement, and its term extends to the expiry of the operation period.

Jinwei is located on the Fu Tun Xi River in the northwest of Fujian province in Shaowu City. Jinwei is a run of the river gated complex with the powerhouse incorporated into the diversion structure on the right bank. The powerhouse contains two 8.0 MW horizontal fully regulated bulb turbine generators manufactured by Dong Feng Hydroelectric Machinery Works.

Projects under Development

Henan Province

Wuyue. On October 22, 2009, we entered into a capital injection agreement with Henan Lantian Group to subscribe for a 79.0% equity interest in Wuyue, which owns the right to develop a pumped storage hydropower project of 1,000.0 megawatts in Henan province. Pursuant to the agreement, we completed the first capital injection of RMB 32.5 million ($4.8 million) on March 23, 2010. In September 2010, we signed a framework agreement with Guangdong Nuclear for the equity transfer of a controlling interest of Wuyue. Under the framework agreement, subject to the completion of definitive documents, completion of due diligence and receipt of required governmental and other approvals in the PRC, the Company would transfer 51.0% equity interest in Wuyue to Guangdong Nuclear, in exchange for which Guangdong Nuclear agreed to fund its proportionate share of the on-going development costs of the project. The framework agreement expired on December 31, 2011 and the project has been largely at a standstill since the acquisition in 2009. The Company expects the project will continue to be at a standstill and as it has no intention to make further investments to Wuyue, the investment in Wuyue was written off as of December 31, 2011.

Projects for Which We Have Signed a Definitive Agreement to Sell

Fujian Province

Yuanping. In December 2011, we entered into an Equity Purchase and Sale Agreement with a third-party buyer to sell Pingnan County Yuanping Hydroelectric Co., Ltd., which owns and operates Yuanping hydroelectric power project, a 16.0 megawatt (“MW”) project located in Fujian province, for a total consideration of $22.2 million, including the assumption of debt by the buyer. The sale transaction was completed on March 2, 2012.

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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;

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• 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.

These criteria are not intended to be exhaustive. Any screening relating to the merits of a particular target business will be based, to the extent relevant, on the above factors as well as other considerations deemed relevant by our management in effecting the acquisition consistent with our business strategy. Our management believes there are ample acquisition targets that meet the above criteria. Furthermore, we believe that there are few experienced and funded buyers in the market. In evaluating prospective acquisitions, our management has sourced a large number of hydroelectric projects in China, including conducting site visits and analyzing operating data from the projects. In addition, our management has conducted comprehensive research on market and competitive dynamics in the industry.

Sign Memorandum of Understanding or Letter of Intent

Once an acquisition opportunity is identified, our staff will conduct an internal preliminary engineering, legal and financial assessment of the target project. The results of the internal preliminary assessment are reported to our management, which decides whether we will pursue the opportunity.

If our management decides to pursue the opportunity, we will enter into a memorandum of understanding or letter of intent with the owner of the target project. This sets forth the general terms and conditions for a possible acquisition and may elect to provide for the payment by us of a deposit of up to 5.0% of the purchase price. The memorandum of understanding or letter of intent allows us to conduct our due diligence review. The memorandum of understanding or letter of intent is generally non-binding, although where we pay a deposit, we may forfeit it if we do not complete the acquisition for reasons other than the failure of the project to pass our due diligence review.

Due Diligence

After the execution of a memorandum of understanding or letter of intent, we conduct a full due diligence review of the target project. The due diligence review covers four main aspects: financial, engineering, legal and asset appraisal. Generally, third-party advisors, such as engineering firms, law firms and asset appraisers, are engaged to assist us with in-depth due diligence under our direction, and will provide due diligence reports for our review. Our own staff is also responsible for the financial review of target projects.

Our financial evaluation is the key first step to understanding the viability of the potential project. We conduct different analyses of the business to ensure the valuation sought is in line with market. We achieve this through evaluation of the asked price, operating expenditure and capital expenditure to ensure that the price we are paying is reasonable. The engineering firm is directed to include in their report an estimate of cost to operate the plant, taking into account periodic equipment maintenance.

The engineering review generally consists of site visits, physical inspection of the facilities, meetings with plant management, analysis of hydrological conditions and potential and historical electricity production, review of project design, construction and operation records, and review of the acquisition cost, operating cost and annual capital expenditures.

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In the review of hydrological conditions and electricity production, the engineering firm is directed to (i) review the precipitation records and the methods used to determine the amount and timing of water flow and the project water intake; (ii) review the methods employed to convert the kinetic energy of water into electricity, including applying the hydrologic potential from the project water to the water conveyance facilities and turbine equipment of the project; and (iii) account for reasonable estimates of planned and unplanned outages due to maintenance, high and low water levels, and transmission interruption due to grid conditions outside the control of the project operator. The engineering firm’s report typically includes monthly and annual electricity production using historical hydrologic records and the equipment installed or to be installed, reflecting a simulation of historical and likely future net electricity production from the project which is then compared, in the case of plants already in operation, to actual electricity production since commencement of operations.

The review of project design is intended to ensure that the civil, mechanical and electrical design of the project is prudent and suitable for the intended duty of a utility grade hydroelectric power project performing continuous operation. In the review of project design, the engineering firm is directed to review the suitability of the project for specific geotechnical conditions, civil structures, and the mechanical and electrical requirements for infrastructure and equipment, including the dimensions, methods of fabrication, depth of excavation, and source of materials used in all project features, including diversion structure, water conveyance, support, power house and outflow.

The actual records of the project construction are selectively reviewed to ensure that customary quality control practices were performed and that construction materials, including steel and concrete, incorporated in the project were manufactured and placed in accordance with prudent design practice. The review covers quality control measures employed by the manufacturers of turbines, generators and electrical equipment in the manufacturing and assembly process and identifies any substandard material or completed work that was removed and replaced. The review of the actual construction ensures that civil, mechanical and electrical aspects of the project conform with the design, that any redesign improvements from the original design necessitated by the actual conditions have been properly incorporated into the work, and that the final as built project is a utility grade hydroelectric power project suitable for continuous duty. Our third party-review of the project design and project construction is intended, among other things, to uncover any deficiencies in the structural or operational integrity of the hydroelectric power project that may have arisen due to construction of the hydroelectric power project based on incomplete or inaccurate technical data, faulty design or poor construction process or materials.

We engage legal counsel to investigate the legal status of the target hydropower project through a review of relevant legal documents, including permits and approvals, tax records, and building ownership certificates and land use rights. The legal counsel prepares a legal due diligence report that sets forth any issues they identify and the associated risks. This process allows us to reduce our risk exposure and more effectively negotiate with the seller to remediate material legal issues before acquiring the target project.

Finally, we also obtain an appraisal from a reputable appraiser of the fair market value of the target project before entering into an agreement with the seller. We generally obtain a written appraisal that covers the plant, property and equipment.

Investment Committee Approval

Upon completion and review of the financial, engineering, legal, and appraisal due diligence, our investment committee will decide whether to enter into a definitive acquisition agreement. Our investment committee currently consists of Mr. Kuhns, Dr. Lin, Mr. Li, Mr. Gan and Mr. Best. Projects are only pursued upon the unanimous consent of the committee members.

Negotiate and Sign Definitive Agreement

The legal documentation of the acquisition is prepared by our legal counsel in conjunction with their in-depth due diligence review of the target. If our project review committee is satisfied with

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the results of the in-depth due diligence, we will enter into an equity interest or asset purchase agreement and other related agreements with the seller of the target and other related parties as necessary. The agreements cover the pricing and payment terms for the acquisition, the financing requirements for the transaction, estimates of approval status and timing and may involve divestiture of non-core assets. These acquisition agreements contain representations, warranties and covenants of the parties that we believe are customary for comparable transactions in China, covering historical tariff, electricity generation and hydrology, the condition of the plant and equipment, the status of government approvals and the ownership history of the plant. Certain representations and warranties of the sellers of these projects, such as those relating to the quality and performance of the projects and obtaining key government approvals, may survive the closing of the project acquisition for a certain period of time, and the breach of these representations, warranties and covenants may entitle us to a setoff against the amounts payable to the sellers or other compensation or indemnification. The executed acquisition agreements are submitted to the relevant government authorities, in particular the provincial or local commerce authorities, for approval. The government approval process generally takes 15 to 60 days, but may take longer in some cases. We generally seek to establish a new wholly foreign-owned enterprise to hold our acquired projects, or we may transfer the assets to an existing FIE.

Upon approval by the authorities, including the Ministry of Commerce, the State Administration of Foreign Exchange, the National Development and Reform Commission and the State Administration for Industry and Commerce, of the acquisition, the relevant engineering, assets, financial and personnel records and materials are handed over from the prior owner of the hydroelectric power project to us, and we assume the operation of the hydroelectric power project. See “Regulation—Regulation Relating to Foreign Investment”.

For projects which are wholly or partially state-owned, we must enter into a competitive bidding process to win the right to acquire a hydroelectric power project. Our acquisition process for these state-owned projects is otherwise the same as that for privately held projects. We may in the future bid for other state-owned projects. See “Risk Factors—Risks Relating to our Company and the PRC Hydropower Industry—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.” and “Regulation—Regulations Relating to Transfer of State-Owned Assets”.

Project Construction

Substantially all of the design, construction and engineering supervision work for our greenfield projects and projects under construction is subcontracted to third parties. Typically, design institutes, contractors and engineering supervisors are selected through an open bidding process. A general contractor may be hired, who is responsible for the selection of sub-contractors, or, in some projects, more than one contractor is hired, each responsible for a designated portion of the project on a turnkey basis. A selection procedure is put in place to ensure compliance with quality and workmanship standards. Factors taken into account when selecting contractors may include their qualifications, reputation, track record, past cooperation with us, and financial condition and resources, as well as the competitiveness of their bids. The qualifications and performance of the contractors are reviewed from time to time. Information throughout the entire project construction process is constantly collected from the contractors and directly by our team, and is closely monitored and analyzed to ensure compliance with quality and workmanship standards and to avoid unanticipated delays and cost overruns.

The construction contracts typically provide for fixed or capped payments, subject to adjustments for certain types of excess, such as design modifications during construction, unanticipated geological conditions discovered during construction and changes in commodities prices. The contractors are typically responsible for procuring the necessary raw materials, as well as providing engineering and construction services, if required.

We generally purchase key equipment from domestic manufacturers and vendors. China is the biggest hydroelectric power producer in the world, according to the International Energy Agency,

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and as a result has a number of manufacturers providing quality hydroelectric equipment at competitive prices. There are also numerous hydroelectric contractors, supervisors and installers competing for projects in China. We expect that, as we grow, we will have greater negotiating power with equipment manufacturers, vendors, contractors and related service providers for the construction and maintenance of our projects.

Commissioning of Project

Since March 2003, the National Development and Reform Commission was created and assumed authority over the review and approval of major new hydroelectric power projects. Approval by the Ministry of Commerce or its designated authority is also required when foreign investment is involved in establishing or acquiring a hydroelectric power project.

On July 19, 2004, the State Council issued a decision entitled “Reform of the Investment System”, or the State Council Decision, which changed the approval process for investments in China. Depending on the types of investments, investments are subject to one of three types of procedures: a full approval procedure, a verification procedure, or a filing for the record procedure.

According to the State Council Decision, hydroelectric power projects without PRC government funding are subject to a verification procedure. This involves the review and verification by the investment regulatory authority of the State Council; if the project is classified as important, additional review and verification by the State Council will be required. Verification by the National Development and Reform Commission and the Ministry of Commerce or local government will also be necessary if foreign investment is involved. Applicants are required to submit only project application reports in lieu of the project proposals, feasibility studies and application reports for commencing construction previously required. The types of specified investments qualified for the verification procedure are subject to change by the State Council.

To develop a new hydroelectric power project, the requisite approvals and permits must be obtained prior to the commencement of construction of a project. These approvals and permits generally include approvals in connection with the plant site, water and soil conservation, environmental protection, land use rights, water resources demonstration, construction land planning permit, construction works planning permit, and construction works commencement permit, among others. We do not plan to develop greenfield projects in the near term.

The construction of hydroelectric power projects is also subject to acceptance inspections, including acceptance inspections with respect to water storage, commissioning of generator units, environmental protection, water and soil conservation facilities and construction completion, among others. Currently, five of our twelve projects have completed completion acceptance procedures, five are expected to complete the procedures in June 2010 and the remaining two are expected to complete the procedures in December 2010. See “Risk Factors—Risks Relating to our Company and the PRC Hydropower Industry—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.”

To operate hydroelectric power projects, relevant permits such as an Electric Power Business Permit (for power generation) and Water Drawing Permit are also required. In addition, the operation of hydroelectric power projects is subject to the supervision and administration of certain relevant governmental authorities, which include the State Electricity Regulatory Commission, and its local branches, and other authorities in charge of water resources, environmental protection, and work safety, among others. See “Regulation”.

Project Operation and Maintenance

We manage most of our existing hydroelectric power projects, except for the Liyuan hydroelectric power project in Sichuan province, and we intend to continue to manage our hydroelectric power projects in the future. The management of the Liyuan hydroelectric power project is currently outsourced to a company affiliated with the local power grid to which the plant is connected. We have acquired and will continue to acquire hydroelectric power projects that are

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clustered or located where we have the potential to acquire adjacent projects, which enables us to centralize operational and management functions for the hydroelectric power projects and thus achieve cost savings.

Repairs and maintenance of hydroelectric power projects are conducted on a regular basis or when necessary. Regular repairs and maintenance are generally scheduled during the off-peak season in order to reduce their impact on normal operations. We perform regular inspections of our generators to look for signs of possible equipment degradation. Minor repairs are typically carried out on an annual basis without interruption to the planned generation of the hydroelectric power project. Major repairs are carried out every four to six years and involve the generator ceasing operation for up to three months. Emergency repairs may be required to be made by our company or by the grid through which we dispatch our power when equipment failures or natural disasters occur. For example, we had been unable to transmit power at the Shapulong power plant to the local grid for approximately six weeks, as the transmission line connecting our plant to the local grid failed during a severe snow storm. Emergency repairs may take one or two days to a month, depending on the nature of the repair, and may interrupt our planned generation.

Sales and Marketing

Power Sale

Each of our operating hydroelectric power projects has entered into a written power purchase agreement with the grid to which it is connected. Generally, the agreement has a term of three to five years, with the tariff negotiated annually. The agreement normally provides that the annual utilization hours of the hydroelectric power project will be determined with reference to the estimated demand for electricity, the forecast water inflow volume at the plant and the strategic importance of the hydroelectric power project to the customer grid. The output that each of our hydroelectric power projects generates is also subject to local demand for power and the amount of power to be dispatched to the grid, and is set and controlled by the relevant provincial government. Actual daily generation of electricity is determined by the dispatch authority based on the needs of the grid. Our actual power generated may therefore be less than our planned power production as approved by the provincial authorities. In practice, our actual power generated is determined based on our daily interactions with our local power grids. We must inform each grid of our ability to produce power based on actual hydrological conditions, and they will take this into account when requesting us to dispatch power each day. In Sichuan, Yunnan and Fujian provinces, our experience has been that we may dispatch all the power we can produce on any given day to the local grid. In Zhejiang province, where we receive different tariffs for peak and off-peak power, we generally dispatch all the power we can produce, however, the local grids may restrict the amount of peak power we dispatch. In line with national policy, we believe the local grids in Zhejiang generally favor renewable energy generators in selecting dispatch of peak power.

We expect that the dispatch of the power we generate will be increasingly influenced by market demand and our competitive tariff as the dispatch system continues to develop towards a market mechanism. The development of this market mechanism is described below.

In 2003, the State Electricity Regulatory Commission and the State Administration for Industry and Commerce jointly promulgated a model contract form, or the Model Contract Form, for use by power grid companies and power generation companies in connection with electricity sale and purchase transactions. The Model Contract Form contains provisions for stipulating the parties’ rights and obligations, amount of electricity subject to purchase, payment method and liabilities for breach of contract. We believe that the publication of the Model Contract Form has facilitated the negotiation and execution of electricity purchase contracts between power grid companies and power generation companies in a fair, transparent and efficient manner. In 2007, all of the agreements entered into between our hydroelectric power projects and the local grid companies were based on the Model Contract Form.

Power sales through competitive bidding are one of the targets of the power market reform. The PRC government began to experiment with a program in 1999 to effect power sales through

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competitive bidding in some provinces, and has been gradually expanding the program with a view to creating a market-oriented electric power industry. Pursuant to the Implementation Opinions Regarding Promotion of Electric Power System Reform in the Eleventh Five-year Plan promulgated on April 6, 2007, the State Electricity Regulatory Commission will speed up the reform to establish an electric power market suitable to China’s circumstances. Among other things, the State Electricity Regulatory Commission will propose relevant policies based on the practices pioneered in the northeastern region and eastern region; promote the construction of a uniform competitive bidding system in each regional power market; accelerate the development of power markets in the eastern region and the northeastern region; carry out trial or simulated operations in the southern region and central region as appropriate; formulate plans and marketing rules for the power market in the northern region and northwestern region; and expand the experimental program on direct power sales between power generation companies and large-scale end-users.

Currently, participants in the trial operations of the regional power markets are limited to coal-fired power projects. Although the Renewable Energy Law and regulations promulgated thereunder require the dispatch and purchase of all power generated by small hydroelectric power projects, these requirements are not always followed in practice. Relevant law requires 100% of our power produced to be purchased by our customer grid, but in practice our planned generation is agreed with the grid each year and may be below our design utilization output. Furthermore, where there is a decrease in demand or increased competition for supply of power to a grid, we may be required by the local dispatch company to generate less than the planned generation agreed with the grid. Establishing regional power markets and increasing the use of the bidding method are the trend in China’s power market reform, and we believe this will create a competitive environment that is fair, transparent and equitable. In general, we believe the move away from local grids to larger regional and state grids will increase our competitive advantage as a low tariff provider of renewable energy, and allow us to increase our utilization levels. We believe that hydroelectric power projects may benefit from this reform, if extended to hydroelectric power projects, as hydroelectricity is a low-cost renewable energy compared to thermal energy. We expect that our efficient operations and management will enable us to compete effectively in an open, orderly and fair market. However, the recent global economic downturn, and the domestic stimulus programs implemented by the PRC government to combat the downturn, may result in the slowing of the reform process outlined above, as the government seeks to support existing thermal power producers through periods of reduced demand. We believe this may in particular be true in the coastal regions, such as Fujian and Zhejiang provinces, which have been affected significantly by the shrinking of the PRC’s export economy. See “Regulation—Regulations on Renewable Energy Resources; Regulations of Power”.

On-grid Tariff

Since April 2001, the Chinese government has started to gradually implement a new on-grid tariff-setting mechanism based on the operating and capital costs of individual power projects as well as the average costs of comparable power projects. On July 3, 2003, the Chinese government approved the tariff reform plan and made it clear that the long-term objective of the reform is to establish a standardized and transparent tariff-setting mechanism.

Pursuant to the National Development and Reform Commission circular issued in June 2004, on-grid tariffs for newly built power generating units commencing operation since June 2004 should be set based on a number of factors. This new mechanism was intended to replace the old tariff-setting mechanism which was designed to enable power projects to recover all operating and debt service costs and to earn a reasonable profit or a fixed rate of return on the net fixed assets. Based on our experience, the determination of average costs under the new mechanism usually takes into consideration factors such as the following:

• construction costs, which vary according to the capacities of the individual power projects;

• operating and administrative expenses, such as labor and fuel costs;

• maintenance and repair costs of power projects; and

• interest expenses on outstanding debts.

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In December 2004, the National Development and Reform Commission proposed and the State Council approved a linkage mechanism between coal and power tariff rates, pursuant to which the National Development and Reform Commission may adjust power tariffs if the average coal price changes by 5.0% within a period of six months compared with the preceding period. The change in a period, if less than 5.0%, will be carried forward to the future periods until the accumulated changes reach 5.0%. Currently, the tariff rates of hydropower are not subject to this linkage mechanism, but reforms in the pricing of coal-fired and other power projects influence the tariffs we receive, and the demand for hydropower, as they impact the economics of the grid as a whole.

On March 28, 2005, the National Development and Reform Commission issued the Interim Measures on Regulation of on-grid Tariff, or the Interim Measures, to provide guidance for the reform of tariff-setting mechanism in the transition period. Under the Interim Measures, the tariff is classified into an on-grid tariff, a transmission and distribution tariff and an end-user tariff. The transmission and distribution tariff will be set by the government. The end-user tariff will comprise power purchasing cost, loss of power in transmission and distribution, the transmission and distribution tariff and any government subsidy. The government is responsible for regulating and supervising power tariffs in light of the principles of efficiency, incentives, and investment encouragement and taking into consideration affordability of power to local consumers.

The on-grid tariffs for our planned output and excess output are subject to an annual review and approval process involving the relevant provincial government authority and the National Development and Reform Commission. In Zhejiang and Fujian provinces, where the tariff rates are among the highest in the country and where our hydroelectric power projects are connected to the state grid, we have little influence on the setting of the tariff rates for our planned and excess output, which are set by the local pricing bureau in line with the Interim Measures upon consultation with the state grid. In Yunnan and Sichuan provinces, where the tariff rates are among the lowest in the country and where our hydroelectric power projects are connected to local grids, we have some ability to negotiate the tariff rates for our planned and excess output with the local grid companies before the tariffs are submitted to the local pricing bureau for approval. Our ability to influence the tariff will depend on the local supply and demand for electricity and the strategic location of our plant in the grid. See “Regulation—Regulations on Renewable Energy Resources; Regulations of Power.”

Competition

Competition within the electric power industry has only been introduced recently in China, as energy producers were historically controlled by the government. China has experienced significant capacity shortages, and suppliers have often been unable to meet the surging demand for electricity. We believe that competition between power projects to sell electricity is lessened due to prevalent supply shortages. Nonetheless, we believe that competition will increase in the long run.

All hydroelectric power projects in China are subject to dispatch conducted by various dispatch centers. A dispatch center is required to dispatch electricity pursuant to the Regulations on the Administration of Electric Power Dispatch Networks and Grids, issued by the State Council with effect from November 1, 1993, and in accordance with its agreements with hydroelectric power projects subject to its dispatch. Power generation companies are also required to enter into on-grid dispatch agreements with power grid companies. As a result, there is competition for favorable dispatch treatment in China’s electric power industry, especially during the off-peak periods. Our ability to sell electricity depends on the dispatch and allocation determined by the dispatch requirements of the local grids to which we sell our electricity. We therefore do not compete directly with other power producers to sell the electricity we generate, but instead, to sell the electricity solely through the local girds. Please see “Business—Sales and Marketing—Power Sale.” As a generator of renewable energy, hydroelectric power projects are technically entitled to preferential treatment in dispatchment over thermal power projects. This factor, combined with the increasing cost of coal and other fossil fuels, has led to increased interest in and support to hydropower in China. If the gap between supply and demand for power in China is met largely by renewable energy generators in the same regions we may in the long term face competition from

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other renewable energy generators for dispatch of our power. However, we believe that in markets dominated by fossil fuel generators, we will experience rising tariffs over the long term.

In addition to competition from other hydroelectric power projects and other power generators to dispatch the power we generate, we may in the future face competition in acquiring additional hydroelectric power projects. Competition may come from China’s five biggest power generating companies, which are all state-owned enterprises and currently operate primarily coal-fired power projects but have become increasingly interested in hydroelectric power projects and other forms of renewable energy. These companies have excellent relationships with the power grids, which provide them an advantage when introducing new plants to a grid. We expect these five companies will focus on large hydroelectric power projects and be slower to seize acquisition opportunities, while we target small projects and have a demonstrated ability to move quickly. Certain smaller China-based and overseas listed power companies are also seeking to acquire hydroelectric power projects in China. Hydroelectric power projects in China are also attractive investments for international investors seeking to generate and trade certified emissions reduction credits. We believe these local and foreign companies are acquiring hydroelectric power projects along with other renewable energy operations and lack the segment focus that our Company has. While we are aware of their activities in the market, we have not experienced direct competition with them to date for project acquisition. We may also encounter some competition from venture capital and private equity funds, leveraged buyout funds and other foreign funded entities interested in acquiring hydropower assets in China. We believe we have the expertise and experience in the hydropower sector to compete effectively with these players.

Intellectual Property Rights

We have registered the Internet domain name www.chinahydroelectric.com.

In China, the registration and protection of a company’s corporate name is carried out at the provincial level. We cannot prevent others from registering our corporate name. If a company first registers China Hydroelectric Corporation as its corporate name in a province where we operate our business, we will have to adopt another corporate name. However, we do not believe that any such loss of our right to use the name China Hydroelectric Corporation would have a significant adverse impact on our business or operations.

Insurance

We currently maintain property insurance for our hydroelectric power projects. Our current insurance coverage is maintained with Ping An Property and Casualty Insurance Company of China, Ltd., PICC Property and Casualty Company Limited, China United Property Insurance Company Limited, Tian An Insurance Company Limited, China Pacific Property Insurance Co., Ltd., Sunshine Property and Casualty Insurance Company Limited and Taiping General Insurance Co., Ltd. on our properties, plants and equipments, and includes construction all risk insurance. Our current coverage totals approximately RMB2,703.1 million ($429.0 million). As with most property insurance policies in China, our policies do not cover damage resulting from earthquakes, war or acts of terror. In addition, we currently maintain liability insurance for our directors and officers with coverage of $20.0 million, employment practice liability insurance with coverage of $3.0 million and pension trustee liability insurance with coverage of $3.0 million.

We do not maintain any other third-party liability insurance to cover claims in respect of bodily injury or property or environmental damage arising from accidents on our property or relating to our operations other than the third-party additional risk insurance included in our construction all risk insurance coverage. We also do not carry business interruption insurance, which is not customarily carried by power companies in China. We believe that our insurance coverage is adequate and is standard for the power industry in China. See “Risk Factors—Risks relating to the Company and PRC Hydropower Industry—Our power generating operations may be adversely affected by operational risks, which may result in uninsured losses.”

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Environmental Matters

We are subject to various environmental laws and regulations set by the national, provincial and municipal governments in China, including regulations on water pollution, as well as water and waste discharge. See “Regulation.”

Our new power projects are normally required to undergo an environmental impact assessment by qualified third parties, and a report of the assessment needs to be submitted to the relevant environmental authorities in order to obtain their approval before commencing construction. Upon completion of each project, the relevant environmental authorities inspect the site to ensure that applicable environmental standards have been complied with, and the resulting report is presented together with other specified documents to the relevant construction administration authorities for their approval. See “Regulation—Regulations on Environmental Protection in Construction Projects.”

We believe our environmental protection systems and facilities for our hydroelectric power projects are adequate for us to comply with currently effective national and local environmental protection regulations. It is expected that the PRC government will impose additional and stricter environmental protection regulations which could require us to make additional expenditures to remain in compliance with environmental regulations. In particular, in the event the PRC government introduced minimum water flow requirements for hydroelectric power projects, a reduction of our power generation at some of our plants could result.

We focus on acquiring projects in operation or under construction rather than developing greenfield projects of our own. When we acquire hydropower projects, we conduct due diligence to determine whether the target project has obtained the approvals and permits necessary for construction and operation, including approvals issued by the Environmental Protection Authority. Where approvals and permits are missing, we require the target project to take remedial action after the acquisition to obtain the necessary approvals and permits. See “Regulation—Regulations on Environmental Protection on Construction Projects”.

Headquarters

We currently maintain our headquarters at Bldg A #2105, Ping’An International Financial Center, No.3 Xinyuan South Road, Chaoyang District, Beijing, PRC 100027. Our headquarters occupy 848.7 square meters under a lease agreement expiring in January 2014. We also maintain office space pursuant to an office sharing agreement with Kuhns Brothers, Inc. in New York City.

Legal Proceedings

We are not currently a party to any material legal or administrative proceedings nor aware of any material legal or administrative proceedings pending or threatened against us. From time to time, we may be subject to various legal or administrative proceedings arising in the ordinary course of our business.

The lawsuit brought by Sinohydro Bureau 16 Company Limited (“Sinohydro Bureau 16”) in November 2010 against Shaowu City Jinlong Hydroelectric Co., Ltd. (“Jinlong”), a subsidiary that we own a 55.0% controlling equity, for the payment of construction fees in the amount of RMB 7,405,373.55 ($1,175,288.22) and related interest and liquidation damages of RMB3.5 million ($0.6 million) was settled under the court mediation on July 14, 2011 for RMB9.2 million ($1.5 million). The settlement agreement has been fulfilled up to February 16, 2012.

In April 2012, twenty-four employees of Henan Wuyue Storage Power Generating Co., Ltd. (“Wuyue”) filed an arbitration claim against us for the payment of salary in total amount of RMB 2,693,500 ($427,811.2) and the payment of social security in total amount of RMB 205,440 ($32,639.2).

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REGULATION

This section sets forth a summary of the most significant PRC regulations that affect our business and the industry in which we operate.

We operate our business in China under a legal regime consisting of the State Council, or China central government, and several ministries and agencies under its authority, including the Ministry of Commerce, the State Administration for Industry and Commerce, the State Administration of Foreign Exchange, the National Development and Reform Commission, the Ministry of Water Resources, the Ministry of Environmental Protection, the Ministry of Land and Resources, the Ministry of Housing and Urban-Rural Development, the State Administration of Taxation, and the State Electricity Regulatory Commission. From time to time, the State Council, the Ministry of Commerce, the State Administration for Industry and Commerce, the State Administration of Foreign Exchange, the National Development and Reform Commission, the Ministry of Water Resources, the Ministry of Environmental Protection, the Ministry of Land and Resources, the Ministry of Housing and Urban-Rural Development, the State Administration of Taxation and the State Electricity Regulatory Commission issue regulations that apply to our business.

Regulations Relating to Foreign Investment

On December 27, 2011, the National Development and Reform Commission and the Ministry of Commerce jointly promulgated a revised Catalogue for the Guidance of Foreign Investment Industries, or the Catalogue, which came into effect on January 30, 2012. The Catalogue lists those industries and economic activities in which foreign investment in China is encouraged, restricted or prohibited. Pursuant to the Catalogue, construction and operation of hydroelectric power projects with the main purpose of power generation fall within the encouraged category.

The principal PRC regulations in connection with foreign investment include:

• The Sino-foreign Equity Joint Venture Law (1979), as amended;

• The Regulations of Implementation of the Sino-foreign Equity Joint Venture Law (1983), as amended;

• The Wholly Foreign-owned Enterprise Law (1986), as amended;

• The Detailed Rules of the Wholly Foreign-owned Enterprise Law (1990), as amended;

• The Company Law of the PRC (1993), as amended;

• The Provisions on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (2009);

• The Interim Administrative Measures on Foreign Investment (2004);

• The Circular Regarding Further Strengthening and Regulating the Administration of Foreign Invested Projects issued by the National Development and Reform Commission (2008).

• Circular of the General Office of the State Council on the Establishment of Security Review System Regarding Mergers and Acquisitions in China by Foreign Investors (2011)

Generally, the acquisitions of domestic enterprises by foreign investors in China are subject to the prior approvals of the National Development and Reform Commission and the Ministry of Commerce, or their local counterparts. After obtaining the approvals from the National Development and Reform Commission and the Ministry of Commerce, the change of shareholders must be registered with the State Administration for Industry and Commerce or its local counterparts and other alteration registrations shall be filed with the government authorities in charge of foreign exchange, customs, tax, land, etc. The acquisition of hydropower plants may also be subject to security review.

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Regulations on Renewable Energy Resources

The Law of Renewable Energy Resources of China

On February 28, 2005, the Standing Committee of the National People’s Congress adopted the Law of Renewable Energy Resources, or the Renewable Energy Law, effective from January 1, 2006. On December 26, 2009, the Standing Committee of the National People’s Congress adopted an amendment to the Renewable Energy Law, which has come into effect on April 1, 2010. Pursuant to the Renewable Energy Law, the PRC government encourages the development and utilization of renewable energy resources, including the connection of renewable energy power generators to local power grids. Pursuant to the Renewable Energy Law, the PRC government implements the development and utilization of renewable energy resources by encouraging the purchase of all renewable energy generated. The State Council energy department, in conjunction with the national power regulatory agency and the State Council finance department, determines, in accordance with the national renewable energy development and utilization plan, the proportion of renewable energy power generation with respect to the overall generating capacity for the planning period. The grid enterprises must enter into grid connection agreements with renewable energy power generation enterprises which have procured administrative permits or have submitted filings and must purchase all hydro-produced power meeting the technical standards for grid connection within their grid coverage. Grid enterprises refusing to purchase power produced by renewable energy generators may be fined in an amount up to double the economic loss suffered by the renewable energy generator. The Renewable Energy Law also authorizes the relevant pricing authorities to set on grid tariffs based on the principles in favor of promoting the utilization of renewable energy and being economically reasonable, and to adjust the tariffs in accordance with the improvement of the renewable energy development and utilization technologies. However, the Renewable Energy Law also stipulates that the application of the Renewable Energy Law to hydroelectric power is guided by the department in charge of energy of the State Council and subject to the approval of the State Council. Such guidance has yet to be provided by the State Council, and in practice the local grids or relevant pricing authorities may not always follow the Renewable Energy Law when purchasing power or setting tariffs.

The Medium and Long Term Development Plan of Renewable Energy Resources

In light of the rapid growth of China economy and rising consumption of energy, China government increasingly encourages the development and use of renewable energy resources. On August 31, 2007, the National Development and Reform Commission issued the Medium and Long Term Development Plan of Renewable Energy Resources, or the Medium and Long Term Development Plan. According to the Medium and Long Term Development Plan, the share of the development and use of renewable energy account for 7.5% of the primary energy consumption in 2005. It aims to have the consumption of renewable energy reaches 10.0% of the total energy consumption by 2010, and 15.0% by 2020.

The Eleventh Five-year Plan of the Development of Renewable Energy Resources

On March 3, 2008, the National Development and Reform Commission issued the Eleventh Five-year Plan of the Development of Renewable Energy Resources, or the Eleventh Five-year Plan. In accordance with the Eleventh Five-year Plan, the total installed capacity of hydroelectric power generation plants in China is to reach 190,000 MW in 2010, up from 117,000 MW at the end of 2005, among which, the installed capacity of small hydroelectric power generation plants shall account for 50,000 MW. During the period of the Eleventh Five-year Plan, China government plans to build up eight Strong provinces of Small Hydropower, including, among others, the provinces in which our projects are located, namely Yunnan province, Fujian province, Zhejiang province and Sichuan province, and 15 small hydropower bases, including Lishui City, Sanming City and Ningde City, among others.

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The Guiding Catalogue for the Development of Renewable Energy Resources Industry

On November 29, 2005, in accordance with the Renewable Energy Law, the National Development and Reform Commission promulgated the Guiding Catalogue for the Development of Renewable Energy Resources Industry, or the Guiding Catalogue. Grid-connected hydroelectric power projects are included in the Guiding Catalogue. In accordance with relevant provisions of the Renewable Energy Law, financial institutions may provide preferential loans with interest subsidies to the development and utilization projects relating to renewable energy resources which are included in the Guiding Catalogue and satisfy the credit requirements. In addition, the Guiding Catalogue contains two categories of hydropower and four categories of relevant equipment manufacturing which are encouraged and shall be entitled to a series of preferential policies in the area of technology research/development, taxation, pricing, marketing/sales and import/export, the details of which shall be promulgated by the State Council. To date, the State Council has not issued any regulatory guidance to provide relevant details regarding these preferential policies. Business activities conducted by us in the development and use of hydroelectric power are encouraged by the government and we may be entitled to benefit from these preferential policies once the State Council issues detailed implementation rules.

The Administrative Regulations on Power Generation of Renewable Energy Resources

On January 5, 2006, the National Development and Reform Commission promulgated the Administrative Regulations on Power Generation of Renewable Energy Resources. Pursuant to this regulation, grid operators are required to ensure renewable energy power generators are connected to their power grid.

The Supervision and Administrative Measures on the Full Purchase of Electricity of Renewable Energy Resources by Grid Enterprises

On July 25, 2007, the State Electricity Regulatory Commission promulgated the Supervision and Administrative Measures on the Full Purchase of Electricity of Renewable Energy Resources by Grid Enterprises effective from September 1, 2007. This regulation further stipulates the grid operators must purchase all the power generated by renewable energy power generators connected to their grid. The regulation also provides that except for large or medium sized hydroelectric power projects, renewable energy power generators do not need to participate in competitive bidding for their on-grid tariffs. This regulation also provides that power dispatch institutions must give priority to renewable power generation companies when dispatching power.

Regulation of Power

The Electric Power Law, which became effective on April 1, 1996, Regulation on the Administration of Electric Power Dispatch to Networks and grids effective on November 1, 1993 and the Regulations on Electric Power Supervision and Administration, which became effective on May 1, 2005, set out the regulatory framework of the power industry in China. Pursuant to this framework the on-grid tariffs are approved and supervised by China government, and all power projects in China are subject to the dispatch of the power they produce by power grid companies assigned to them.

Regulation of On-grid Tariffs

On February 10, 2002, the State Council promulgated the Issuance of the Reform Plan for the Electric Power System Circular, according to which, in the long-term on-grid tariff will be gradually determined by market competition.

On April 6, 2007, the General Office of the State Council issued the Opinions on Implementing Further Reform in Electric Power Industry during the “Eleventh Five-year Plan” Period, which confirms, among other things, the continuance of further reform of tariff, establishment of the formation system of on-grid tariff corresponding to the competition in power generation segment,

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execution of the tariff policies favorable to energy saving and environmental protection, and full implementation of the tariff scheme stimulating the development of clean energy.

The Electric Power Law, effective from April 1, 1996, provides the general principles for determining tariffs, which are intended to include reasonable compensation for costs, a reasonable profit and tax, to share expenses fairly and to promote the construction of power projects.

In April 23, 2001, the former State Development and Planning Commission, the predecessor to the National Development and Reform Commission, issued a notice containing guidelines for tariff administration. Pursuant to the notice, a new on-grid tariff-setting mechanism, based on the operating term of power stations as well as the average costs of comparable advanced power stations adopting the same type of techniques that were constructed during the same period within the same provincial power grid, was gradually implemented.

On July 9, 2003, the State Council promulgated the Tariff Reform Scheme. In accordance with the Tariff Reform Scheme, the direction of the reform of the on-grid tariff is to introduce a competitive mechanism in all respects and the tariff shall be set through the competition of supplying and demanding parties. During the transition period, the on-grid tariff is mainly implemented by a two-part tariff system, among which, capacity tariff shall be set by the government and the energy tariff shall be set by market competition. Competitive bidding for a portion of the energy tariff and other transition methods may also be adopted according to actual situations.

On March 28, 2005, the National Development and Reform Commission issued the Interim Measures on Regulation of On-grid Tariff, the Interim Measures on Regulation of Transmission and Distribution Tariff, and the Interim Measures on Regulation of End-user Tariff, to provide guidance for the reform of the tariff-setting mechanism in the transition period.

The National Development and Reform Commission issued the Trial Measures for the Administration of the Tariff of, and the Sharing of Costs in Connection with, Power Generation Using Renewable Energy Resources, or the Trial Measures, on January 4, 2006, however, the Trial Measures explicitly stipulate that the mechanism for setting the tariff after tax for hydroelectricity be in accordance with prevailing regulations for the time being.

On July 25, 2007, the State Electricity Regulatory Commission promulgated the Supervision and Administration Measures on the Full Purchase of Electricity of Renewable Energy Resources by Grid Enterprises effective from September 1, 2007. The Measures provide that except for large or medium hydroelectric power projects, renewable energy power generators will not participate in competitive bidding for on-grid tariffs. If hydropower generators with the electricity fully purchased by grid companies are engaged in any transaction in the power market, they shall comply with relevant rules and regulations of the State Electricity Regulatory Commission.

Regulation of Power Dispatch

On November 1, 1993, the Regulations on the Administration of Electric Power Dispatch to Networks and Grids, or the Dispatch Regulations, became effective. The Dispatch Regulations apply to all power projects in China and require them to generate power in accordance with their grid connection agreements.

On August 2, 2007, the State Council approved the Measures on Dispatch of Energy Saving Power Generation (For Trial Implementation), or the Trial Dispatch Measures, jointly issued by the National Development and Reform Commission, the State Electricity Regulatory Commission, the former State Environmental Protection Bureau, the predecessor of the Ministry of Environmental Protection and Office of the National Energy Leading Group. Pursuant to the Trial Dispatch Measures, the dispatch priority of power generation units is determined in the following sequence: (a) non-adjustable power generation units utilizing renewable energy (including hydraulic energy); (b) adjustable power generation units utilizing renewable energy (including hydraulic energy) and garbage generator units which meet the requirements of environmental protection; (c) nuclear power generation units; (d) coal- fired heat-load based CHP units and multiple resource power generation units; (e) gas-fired power generation units; (f) coal-fired power generation units, including cogeneration units without heat load; and (g) oil-fired power generation units.

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The Provisions on the Administration of Electric Power Business Permits

On October 13, 2005, the State Electricity Regulatory Commission promulgated the Provisions on the Administration of Electric Power Business Permits, which came into effect on December 1, 2005. Pursuant to this regulation, public power projects, grid-connected self-provided power projects, and other projects as prescribed by the State Electricity Regulatory Commission shall apply for and procure power generation permits. The enterprises failing to obtain power generation permits and illegally conducting power business shall be ordered to obtain the permits and any illegal income shall be forfeited, with fines up to five times the illegal income being imposed. If a crime is constituted, criminal liability shall arise.

Regulations Relating to Transfer of State-Owned Assets

Under the Interim Measures for the Management of the Transfer of State-owned Assets of Enterprises, or the Interim Measures, jointly promulgated by the State-owned Assets Supervision and Administration Commission of the State Council, and the Ministry of Finance, with the effective date on February 1, 2004, the transfer of state-owned assets can be carried out by auction, bidding, agreement or other means that are permitted under the PRC laws and regulations. A seller of state-owned assets must appoint an asset valuation institution to evaluate the to-be-transferred assets and the valuation report, after being confirmed by or filed with relevant authority in charge of state-owned assets administration, shall be referenced to determine the transfer price. In case the transfer price is lower than 90% of the valuation result, the transaction shall be suspended and shall not proceed until being approved by relevant approval authorities.

On December 31, 2006, the State-owned Assets Supervision and Administration Commission and the Ministry of Finance jointly issued the Circular on Some Issues Relevant to the Transfer of State-owned Assets of Enterprises, or the Circular. Pursuant to the Circular, the state-owned assets are permitted to be transferred over the counter only under the following two (2) circumstances with the approval of the State-owned Assets Supervision and Administration Commission or the State-owned Assets Supervision and Administration Commission offices at provincial level and at the set price:

(1) Where there are special requirements on the transferee in the restructuring of the key industries and sectors of national economy; or

(2) Where the direct transfer by agreement is necessary in the internal assets reorganization of the invested enterprises, that is the enterprises supervised by relevant state-owned assets regulatory authorities as the investors, and the transferor and the transferee should both be the invested enterprises or their wholly invested or absolutely controlled enterprises.

According to the Circular, in the event that the proposed state-owned assets are to be transferred to a foreign investor, such transfer shall proceed publicly in a related assets exchange market. If the agreement must necessarily be conducted by agreement, the requirements on transfer by agreement specified by the Interim Measures and the Circular shall be all satisfied. If the foreign investors are potential transferees and the target assets belong to the sectors in which foreign capital is restricted or forbidden to be invested in accordance with the Catalogue for the Guidance of Foreign Investment Industries and other applicable PRC laws and regulations, the transferor shall indicate the relevant information publicly to remind the potential transferees. If a foreign investor becomes the transferee in the assets exchange market, the transferor shall obtain approval from relevant governmental authorities in accordance with applicable laws and regulations.

Regulations on Environmental Protection in Construction Projects

All hydropower stations in China are subject to the Environmental Protection Law, the Environmental Impact Evaluation Law, the Law on the Prevention and Treatment of Water Pollution, the Law on the Prevention and Treatment of Air Pollution and the Law on Ocean Environment Protection, or collectively, the National Environmental Laws, relevant administrative regulations, ministerial rules and the environmental rules promulgated by the local governments in which jurisdictions the hydropower stations are located. According to the National Environmental

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Laws, the State Environmental Protection Administration, the predecessor of the Ministry of Environmental Protection, sets national pollutants emission standards and provincial governments may set their local standards for the pollutant emission not specified in the national standards, and set stricter local standards which are required to be filed at the State Administration for Environmental Protection, the predecessor of the Ministry of Environmental Protection. Enterprises discharging pollutants in areas where the local standards for pollutant emission have been set shall observe such local standards.

Pursuant to the Environmental Impact Evaluation Law promulgated on October 28, 2002, the Administrative Rules on Environmental Protection of Construction Projects promulgated on November 29, 1998, and Administrative Measures on Environmental Protection Acceptance upon Completion of Construction Projection promulgated on December 27, 2001, enterprises are required to engage qualified and certified institutions to provide environmental impact evaluations on construction projects and to prepare environmental impact assessments. Construction of any new hydroelectric power project or expansion of an existing hydroelectric power project may only commence after such an assessment is submitted to and approved by the relevant environmental protection administrative authority.

According to the Classified Directory for Environmental Protection and Administration of Construction Projects, promulgated on September 2, 2008 by the Ministry of Environmental Protection and effective on October 1, 2008, the construction of hydroelectric power projects are required to prepare environmental impact assessment forms except for those with total installed capacity of 1,000.0KW or above, pumped storage power stations and hydroelectric power projects in environmental sensitive areas being required to prepare environmental impact assessment reports. In accordance with the Environmental Impact Evaluation Law, construction of any hydropower station is prohibited without the approval of the relevant government authorities of such environmental report or form and the related underlying documents if construction of a hydropower station occurs without such governmental approval, whether by failing the evaluation or not applying for an evaluation, then the relevant enterprise will be ordered to cease construction and be subject to making up relevant procedures within a prescribed time period with the relevant environmental protection administrative authorities. Enterprises that fail to complete such formal procedures within the prescribed time may be fined, and the management and other personnel with direct responsibility for the enterprise are subject to administrative penalties. The National Environmental Laws generally impose discharge fees for polluting substances, and provide for possible closure by the central or local government of any enterprise which fails to comply with orders requiring it to cease or rectify the activities causing environmental damage.

In accordance with the Administrative Rules on Environmental Protection of Construction Projects, the Administrative Measures on the Completion Acceptance of Environmental Protection of the Construction Projects and other relevant regulations, each hydroelectric power project must be tested and approved by local environmental agencies before commissioning, and is subject to continuous government monitoring after commissioning. After the completion of the construction of the hydroelectric power project, it must apply for completion acceptance of environmental protection.

On December 29, 2011, the Ministry of Environment Protection issued the Notice on Strengthening Environment Impact Assessment in Southwestern China (the “Notice”), which became effective on the same date of its issuance. According to the Notice, the acceptance for approving environmental assessment documents for hydroelectric constructing projects shall be supported by an investigative opinion on the environment impact assessment of the development plan for the river valleys where such projects are located. With respect to the river valleys with prior development history, if no environment impact assessment on the development plan is available, submission of environmental assessment documents for the hydroelectric construction projects must be supported by retrospective researches on the environment impact assessment of the development.

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The Law of Energy Conservation of China

On October 28, 2007, the Standing Committee of the National People’s Congress adopted amendments to the Law of Energy Conservation, which sets forth policies to encourage energy conservation in industrial sector, buildings, transportation, public institutions and key energy consumption entities. The amendments also seek to develop small hydroelectric power generation plants based on the principle of scientific planning and orderly development.

Regulations on Water and Soil Conservation

On June 29, 1991, the Law of Water and Soil Conservation was promulgated, which was amended on December 25, 2010 with effect from March 1, 2011. On August 1, 1993, the Implementation Regulations on the Law of Water and Soil Conservation were issued, which were amended on December 29, 2010 with effect from January 8, 2011. In accordance with these regulations, when launching a construction project that may result in water and soil loss in mountainous areas, upland areas, and sandy areas with high wind or any other area specified in the water and soil conservation plan prone to water and soil loss, the construction entity shall compile a water and soil conservation scheme and submit it to the water resources authority of the people’s government at or above the county level for approval. Facilities for water and soil conservation shall be designed, constructed and put into operation simultaneously with the principal part of the construction project and subject to the completion acceptance by relevant governmental authorities, including the water resources authority, before the construction project is put into production. Enterprises shall in the course of construction and production adopt water and soil conservation measures and shall be liable to the control of any loss of water and soil. In case commencing the construction of a construction project, which is required to compile a water and soil conservation scheme, without such scheme or without procuring the approval for such scheme, the water resources authority of the people’s government at or above the county level shall order the construction entity to cease the illegal act and go through the relevant formalities within the prescribed time limit; if it fails to do so, a fine up to RMB500,000 shall be imposed upon; and disciplinary actions shall be taken against the directly liable person in charge and other directly liable persons of the production or construction entity according to law. Where any entity puts a construction project into operation without going through completion acceptance of facilities for water and soil or failing to pass such completion acceptance, the water resources authority of the people’s government at or above the county level shall order it to cease production or use until the completion acceptance is passed, and a fine up to RMB500,000 shall be imposed upon.

Regulations on Water Drawing

According to the Water Law, which was promulgated by the Standing Committee of the National People’s Congress on August 29, 2002 and took effect on October 1, 2002, any legal entity or individual drawing water directly from rivers, lakes or underground shall apply to the water administrative departments or the drainage management departments for a Water Drawing Permit and pay the water resource fees in order to obtain the water drawing rights in accordance with the national water drawing system and the water resource fees system. The State Council is responsible for stipulating the detailed rules regarding the implementation of the Water Drawing Permit system and the collection of water resource fees.

On February 21, 2006, the State Council promulgated the Administrative Regulations on Water-drawing Permits and the Collection of Water Resource Fees, or the Water Drawing Regulations, effective from April 15, 2006. Pursuant to the Water Drawing Regulations, any entity or individual that draws water resources shall, other than for the exceptions prescribed in the Water Drawing Regulations, apply for a Water Drawing Permit and pay water resource fees. Absence of the water drawing permit or failure to obtain such a permit may result in the forced cessation of the water drawing activity, the requirement of immediate remediation and/or the imposition of fines.

The Water Drawing Regulations also provide that a water-drawing entity or individual shall pay water resource fees. A water-drawing entity or individual shall draw water according to the

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government-approved annual water drawing plan. For water drawing exceeding the plan or quota, water resource fees shall be charged progressively on the excess.

In accordance with the Water Drawing Regulations, the amount of water resource fees due shall be determined based on the levy standard of water resource fees at the locality of the water intake and the actual volume of water for drawing. As for water drawing for the purpose of hydroelectric power generation, the amount of water resource fees due may be determined based on the levy standard of water resource fees at the locality of the water intake and the actual quantity of electricity generated. When a water drawing entity or individual refuses to pay, delays in, or otherwise defaults on the payment of water resource fees, the entity or individual will be subject to the penalties prescribed under the Water Law.

On April 9, 2008, the Ministry of Water Resources promulgated the Measures for Administration of Water Drawing Permits, or the Water Drawing Permit Measures. Under the Water Drawing Permit Measures, for construction projects which need to apply for water drawing, the applicant shall entrust an organization with corresponding qualification to prepare a Construction Project Water Resources Analysis Report. For construction projects which draw a comparatively low volume of water and have a comparatively small impact on the surrounding environment, the applicant may be exempted from complying with the requirement to prepare a Construction Project Water Resources Analysis Report but should fill out a Construction Project Water Resources Analysis Form. The applicant should submit the application documents to the relevant authority for obtaining the Water Drawing Permit after the construction of the water-drawing project or facility has been completed and its trial operation has lasted for 30 days.

On November 10, 2008, the Ministry of Finance, the National Development and Reform Commission and the Ministry of Water Resources jointly issued the Administrative Measures on the Collection and Use of Water Resource Fees, or the Water Resource Fees Measures, effective from January 1, 2009. In accordance with the Water Resource Fees Measures, the water resource fees shall be levied on a monthly basis. A water-drawing entity or individual shall submit the volume of water drawn (or the quantity of electricity generated) to the competent water resources authority in charge of collection of water resource fees on a monthly basis and shall make payment of water resource fees within seven days after receiving the Water Resource Fees Payment Notice sent by the competent water resources authority in charge of collection of water resource fees. The Water Resource Fees Measures further clarify that the levy standard of water resource fees shall be set by the National Development and Reform Commission jointly with the Ministry of Finance and the Ministry of Water Resources with respect to the water conservancy projects directly under the administration of the PRC central government or covering different provinces, autonomous regions, or municipalities directly under the PRC central government whose water drawing shall be subject to examination and approval of the drainage area management authority. In addition, the Water Resource Fees Measures stipulate that the levied water resource fees are to be exclusively used for water conservation protection and management, as well as the reasonable development of water resources.

Regulation in Relation to Land

All land in China is either state owned or collectively owned, depending on the location of the land. All land in the urban areas of a city or town is state owned, and all land in the suburban areas of a city or town and all rural land is, unless otherwise specified by law, collectively owned. The State has the right to expropriate or requisition with compensations land in accordance with law if required for the benefit of the public.

In April 1988, the Constitution of China, or the Constitution, was amended by the National People’s Congress to allow for the transfer of land use rights for value. In December 1988, the Land Administration Law was amended to permit the transfer of land use rights for value.

In accordance with the Land Administration Law amended in 2004, the construction unit shall obtain the state-owned land use rights through grant or by other means with consideration. But the following land may be obtained through governmental allocation with the approval of the people’s governments at and above the county level according to law:

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• Land for use by government organs and for military use;

• Land for building urban infrastructure and for public welfare undertakings;

• Land for building energy, communications and water conservancy and other infrastructure projects heavily supported by the State; and

• Other land as provided for by the law and administrative decrees.

Under the Provisional Regulations of China concerning the Grant and Assignment of the Land Use Right of State-owned Land in Urban Areas, or the Urban Land Regulations, promulgated in May 1990, local governments at or above county level have the power to grant land use rights for specific purposes and for a definite period to a land user pursuant to a contract for the grant of land use rights against payment of a grant premium.

Under the Urban Land Regulations, all local and foreign enterprises are permitted to acquire land use rights unless the law provides otherwise. The State may not resume possession of lawfully granted land use rights prior to expiration of the term of grant. If public interest requires the resumption of possession by the State under special circumstances during the term of grant, compensation must be paid by the State. A land user may lawfully assign, mortgage or lease its granted land use rights to a third party for the remainder of the term of grant. Under the Urban Land Regulations, there are different maximum periods of grant for different uses of land: 70 years for residential purposes; 40 years for commercial, tourism and entertainment purposes; 50 years for industrial, public utilities, comprehensive or other purposes.

On October 22, 2001, the Ministry of Land and Resources promulgated the Catalogue of Allocated Land, according to which, for infrastructure facilities projects, such as energy, transportation and water resources heavily supported by the State, the land use rights may be allocated; for the infrastructure facilities projects, such as energy, transportation and water resources which are aimed at profit-making and not heavily supported by the State, land use rights shall be supplied for value.

On March 16, 2007, the National People’s Congress promulgated the Real Properties Rights Law of China effective from October 1, 2007, which stipulates that the construction land use rights may only be created through grant or allocation. For land used for industrial, business, entertainment or commercial residential purposes, the construction land use rights must be granted by means of public tender, auction or listing-for-sale. To create the construction land rights through allocation is stringently restrained. For adopting such means of allocation, the provisions on land uses in the laws and administrative regulations must be observed.

On January 3, 2008, the State Council promulgated the Notice of the State Council Regarding Promoting Saving and Intensive Use of Land, according to which, except for the lands used for military, social security housing and special purposes, it is promoted that the use of land for governmental offices, transportation, energy, water resources and other infrastructures (industries) shall be compensated. In particular, the compensated use of land should be applied to those lands used for commercial purposes firstly. As a result, we expect to be required to pay compensation for some or all of the allocated land occupied by our hydroelectric power projects.

On March 5, 2011, the State Council issued the Regulations on Land Reclamation, which was effective on the same date. According to the regulations, “land reclamation” means the activities of adopting rectification measures on land damaged by production or construction activities or natural disasters to restore the land to usable condition. With respect to reclaiming the land, the land damaged by production or construction activities shall be reclaimed by the production or construction entity according to the principle of “reclamation by the party causing the damage”. The party responsible for rehabilitating the land shall submit the land reclamation plan together with the other relevant materials when filing an application for construction land or mining rights. If such party fails to prepare the land reclamation plan or the land reclamation plan fails to meet the relevant requirements, the application will be denied. the construction land.

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Regulations on Construction

Pursuant to the Construction Law, effective from March 1, 1998 and amended on April 22 2011 with effect from July 1, 2011, prior to the start of construction projects, project owners must, in accordance with relevant provisions of the State, apply to competent construction administrations at or above the county level of the place where the project is to be located for construction permits, except for small projects below a value set by the competent construction administration of the State Council.

Regulations on Bid Invitation and Bid Tendering

On August 30, 1999, the Standing Committee of the National People’s Congress adopted the Law of China on Bid Invitation and Bid Tendering, effective from January 1, 2000; on December 20, 2011, the State Council promulgated the Implement Measures on the Law of China on Bid Invitation and Bid Tendering, which came into effect on February 1, 2012. According to the aforesaid law and its implementation measures, the projects such as large-scale infrastructure facilities and public utilities involving the social and public interests and public safety, projects which are, wholly or partially, invested by the State-owned funds or funded through State financing and projects using loans or aid funds from international organizations or foreign governments, including surveying and prospecting, design, engineering and supervision of such projects as well as the procurement of major equipments and materials related to the construction of such projects, must be subject to bid invitation procedure.

On May 1, 2000, the National Development and Reform Commission, the former State Development and Planning Commission, promulgated the Provisions on the Scope and Scale Standards of Bid Invitation for Construction Projects, which further defines the scope of projects of large-scale infrastructure facilities and public utilities involving the social and public interests and public safety, projects which are, wholly or partially, invested by the State-owned funds or funded through State financing and projects using loans or aid funds from international organizations or foreign governments.

On October 29, 2001, the Ministry of Water Resources promulgated the Administrative Provisions on Bid Invitation and Bid Tendering of Water Resources Construction Projects, effective from January 1, 2002, according to which the bid invitation procedure shall be required where any of surveying and prospecting, design, engineering, and supervision of water resources works construction projects and the procurement of substantial equipment and materials related to water resources works construction projects falls within the following specific scope and concurrently meets any of the following scale standards:

(1) Specific scope

• water resources construction projects involving the social and public interests and public safety such as flood prevention, drainage, irrigation, hydraulic power generation, diversion (supply) of water, harnessing shoals, water conservation and protection of water resources;

• water resources construction projects which are, wholly or partially, invested by the State-owned funds or funded through State financing; or

• water resources construction projects using loans or aid funds from international organizations or foreign governments.

(2) Scale standards

• the estimated price for any single construction contract exceeds RMB2,000,000;

• the estimated price for any single procurement of substantial equipments and materials exceeds RMB1,000,000;

• the estimated price for any of surveying and prospecting, design or supervision exceeds RMB500,000; or

• the estimated prices are lower than the above standards, but the total investment of the projects exceeds RMB30,000,000.

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Regulations Relating to Anti-trust

The Antimonopoly Law of China was adopted by the Standing Committee of the National People’s Congress on August 30, 2007 and became effective on August 1, 2008. The Antimonopoly Law provides that business operators shall not eliminate or restrict competition by engaging in activities such as:

• entering into monopoly agreement;

• abusing the dominant market position;

• conducting concentrations (as defined under the Antimonopoly Law) without first obtaining approvals from relevant authorities;

• abusing administrative power; or

• abusing intellectual property rights.

On August 3, 2008, the State Council promulgated the Regulations on the Thresholds for Reporting of Concentration of Business Operators. In accordance with this new regulation, the concentration of business operators refers to merger of business operators, acquisition of control over other business operator(s) by acquiring equity interests or assets, or contracting or in other manners to acquire control of, or become capable of exerting decisive influences on, other business operator(s). This new regulation further provides that, where the concentration of business operators reaches any of the following thresholds, the business operators concerned shall report it to the commercial authority of the State Council beforehand, otherwise, the concentration shall not be carried out: (1) the annual turnover achieved by all the business operators to a concentration transaction exceeds RMB10 billion world-wide in the preceding financial year, and at least two of them has turnover which in each case exceeds RMB400 million in China in the preceding financial year; or (2) the annual turnover achieved by all the business operators to a concentration transaction exceeds RMB2 billion in China in the preceding financial year, and at least two of them has turnover which in each case exceeds RMB400 million in the preceding financial year. Where a concentration of business operators does not reach the aforesaid reporting thresholds but the facts and evidence collected through prescribed procedures indicate that such concentration can or may eliminate or restrict competition, the commercial authority of the State Council shall carry out investigations in accordance with the law. The calculation of turnover shall take into consideration special situations in certain industries and sectors such as banking, insurance, securities, futures and specific rules shall be formulated by the commercial authority together with other departments under the State Council.

On February 3, 2011, General Office of the PRC State Council issued the Circular of the General Office of the State Council on the Establishment of Security Review System Regarding Mergers and Acquisitions in China by Foreign Investors, or Security Review Circular, which provides for the establishment of a new inter-ministerial-security-review committee under the State Council, or the Committee, which will be comprised of members from National Development and Reform Commission, Ministry of Commerce and other relevant departments. According to the Security Review Circular, the acquisitions by foreign investors of domestic Chinese companies active in the following sectors shall be subject to security review: (i) military including related activities, companies located near key and sensitive military facilities, and other units concerning national defense; or (ii) key agricultural products, key energy and resources, key infrastructure, key transportation services, key technologies and key equipment manufacturing enterprises etc that raise national security concerns, where the foreign investor might acquire actual control of the target Chinese company through the acquisition.

The types of merger and acquisition transaction covered by the Security Review Circular include: (i) the purchase by foreign investors of existing equity interest or shares or increased capital of Chinese non-foreign-invested-enterprises and conversion of such domestic Chinese enterprises into foreign invested enterprises; (ii) the purchase by foreign investors of equity interests or shares owned by Chinese parties in foreign invested enterprises or the purchase by foreign investors of the increased capital of foreign invested enterprises; (iii) the establishment by foreign investors of foreign invested enterprises and the purchasing and operating of assets acquired from domestic

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Chinese enterprises through such foreign invested enterprises, or the purchase of equity interests or shares of domestic Chinese enterprises through foreign invested enterprises; and (iv) the purchase directly by foreign investors of assets owned by domestic Chinese enterprises and the establishment of foreign invested enterprises to operate such assets.

As contemplated by the Security Review Circular, the new security review process will consider the impact of the proposed transaction on national defense, national economic stability, basic social living order, and the research and development capacity for key technologies related to national security. The new security review process would begin with a preliminary screening conducted upon application to the Ministry of Commerce initiated by the foreign investors in a proposed transaction. Chinese government agencies, national trade unions/associations, competitors, and upstream and downstream enterprises are also entitled to initiate a security review of a proposed transaction by the Committee through an application to Ministry of Commerce. The Ministry of Commerce will transfer to the Committee all applications determined to fall within the purview of the security review regulations within five working days. The Committee will first complete a general review of the proposed transaction. If after the general review, the Committee concludes that the proposed transaction may have an impact on national security, the Committee will conduct a special review of the proposed transaction. If after the special review, the Committee concludes that the proposed transaction may have a material impact on national security (including economic and social stability), the Committee will so notify Ministry of Commerce and the parties to the proposed transaction will be required to terminate the transaction or implement other measures or modifications to eliminate the impact of the proposed transaction on national security. It is unclear whether the Security Review Circular would have retrospective effect. If any of our existing projects is considered as having caused concerns to the national security, the relevant PRC authority may require us to terminate the transaction, transfer relevant equity interests or assets, or implement other measures or modifications to eliminate the impact of the transaction on national security.

On March 4, 2011, Ministry of Commerce issued Tentative Measures on Certain Issues Concerning Implementation of Security Review System Regarding Mergers and Acquisitions in China by Foreign Investors with effect from March 5, 2011 to August 31, 2011, which specifies, inter alia, the application procedure and requisite documents need to be submitted to the Ministry of Commerce.

On August 25, 2011, the Ministry of Commerce issued the Provisions of the Ministry of Commerce on the Implementation of the National Security Review System for Merger and Acquisition of Domestic Enterprises by Foreign Investors (the “Implementation Provisions”), which became effective on September 1, 2011. The Implementation Provisions further specifies the application procedure and stipulates that (i) whether a transaction falls within the scope of the security review will be judged from the substantive contents and actual influences of the transaction and that (ii) foreign investors may not substantially evade the security review by any means, including but not limited to holding on agency basis, trust, multi-tier reinvestment, leasing, loan, control by agreement, and overseas transactions.

Tax Law

Enterprise Income Tax Law

On March 16, 2007 and December 6, 2007, respectively, the new PRC Enterprise Income Tax Law, or the EIT Law and the Implementation Regulations of Enterprise Income Tax Law of China were promulgated by the National People’s Congress and the State Council and became effective on January 1, 2008. Under the EIT Law, the EIT shall be levied at the rate of 25.0%. In case a nonresident enterprise that has no organ or establishment within the territory of PRC, or its income has no actual connection to its organ or establishment within the territory of PRC obtains incomes sourced within the territory of PRC, the EIT shall be levied at the rate of 20.0% for such incomes, which has been reduced to 10.0% by the Implementation Regulations of the EIT Law. As regards a small meager-profit enterprise satisfying the prescribed conditions, the EIT shall be levied at a reduced rate of 20.0%. As regards important high-tech enterprises necessary to be supported by the state, the EIT shall be levied at a reduced rate of 15.0%. Enterprises that enjoy the preferential

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policies of low tax rates in the past time shall be gradually transited to be enjoying the statutory tax rate within 5 years after carrying out the EIT Law. As of January 1, 2008, the enterprises that enjoy preferential treatments in the form of periodic tax deductions and exemptions may, after carrying out the EIT Law, continue to enjoy the relevant preferential treatments under the preferential measures and the time period set down in the previous tax law, administrative regulations and relevant documents until the expiration of the said time period. However, its preferential time period shall be counted from 2008 if such an enterprise has not enjoyed the preferential treatments yet because of its failure to make profits. Businesses contributing to the development of Western China are also entitled to a reduced EIT rate of 15.0%. Our Binglangjiang I business benefitted from this reduced rate of 15.0% in 2007.

Under current PRC tax laws, regulations and rulings, an enterprise payer is classified as either a resident enterprise or non-resident enterprise. A resident enterprise refers to an enterprise that is established under PRC law within the PRC, or is established under the laws of foreign country or region but has its de facto management body located in China. “De facto management body” is defined as an organization that exercises material and full management and control over matters including the enterprise’s production and operations, personnel, finance and property. A “nonresident enterprise” refers to an enterprise established under the laws of a foreign jurisdiction which does not have its de facto management body located in China, but which either establishes an organization or office within China or, without such presence within China, generates revenue within China. A resident enterprise shall pay the EIT for its incomes sourced from both inside and outside the territory of PRC. In case a non-resident enterprise sets up an organ or establishment within the territory of PRC, it shall pay EIT on its incomes sourced inside the territory of PRC and incomes sourced outside the territory of PRC but actually connected with the said organ or establishment. In case a non-resident enterprise has no organ or establishment within the territory of PRC, or its incomes have no actual connection to its organ or establishment inside the territory of PRC, it shall pay EIT on the incomes sourced inside the territory of PRC.

On January 9, 2009, the State Administration of Taxation promulgated the Interim Measures for the Administration of Withholding of the Source of Enterprise Income Tax for Non-resident Enterprises, or the Interim Measures, which took effect retroactively on January 1, 2009. In accordance with the Interim Measures, if a non-resident enterprise obtains the income originating from the PRC, or the taxable income, including equity investment income such as dividend and bonus, interest, rental and royalty income, income from property transfer and other income, the payable EIT on the taxable income shall be withheld at the source by the enterprise or individual who is directly obligated to make relevant payment to the non-resident enterprise under relevant laws or contracts, or the withholding agent.

The withholding agent shall make the withholding registration with the competent tax authority within 30 days after it has signed the first business contract or agreement involving the taxable income with the non-resident enterprise. Thereafter, whenever contracts involving the taxable income are signed, amended or renewed by the withholding agent and the non-resident enterprise, the withholding agent shall, within 30 days of such signing, amendment or renewal, submit a “Contract Filing and Registration Form for EIT Withholding”, a copy of the contract and other relevant documents to the competent tax authority for record. In the event that a transfer of domestic equity between non-resident enterprises takes place outside the PRC, the domestic enterprise whose equity is transferred shall file a copy of the equity transfer contract with the competent tax authority when it applies for change of tax registration according to the law.

The withholding agent shall withhold the EIT on the taxable income to be paid or due to the non-resident enterprise. If the withholding agent has not withheld the EIT or is unable to withhold the EIT, the non-resident enterprise shall, within 7 days after the payment is made or becomes due, file and pay the EIT to the local tax authority where the taxable income has occurred. In the event that a transfer of domestic equity between non-resident enterprises takes place outside the PRC, the non-resident enterprise receiving the taxable income shall pay the EIT to the local tax authority of the domestic enterprise whose equity is transferred in person or through an agent, and the domestic enterprise whose equity is transferred shall assist the tax authority in the collection of the EIT from the non-resident enterprise.

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In the event that a non-resident enterprise fails to file and pay the EIT to the tax authority in the manner or within the timeframe required by the Interim Measures, it will be ordered by the tax authority to pay the EIT within a limited period of time. If the non-resident enterprise fails to pay the EIT within such period of time, the tax authority may collect and verify information of other PRC income sources and relevant payers of the non-resident enterprise, and issue a tax notice to the relevant payers to pursue the due EIT and fine by the non-resident enterprise from the amount payable by the relevant payers to the non-resident enterprise.

On February 20, 2009, the State Administration of Taxation promulgated the Notice on Relevant Issues of Implementing Dividend Clauses under Tax Treaties, or the Notice. According to the Notice, the transaction or arrangement, the major purpose for which is to obtain preferential tax treatment, shall not justify the application of preferential treatment stipulated in dividend clauses under tax treaties. Should the tax payer improperly enjoy the treatment under tax treaties as a result of such transaction or arrangement, the tax authorities in charge shall have the right to adjust. As the Notice is newly issued, it remains unclear how the PRC tax authorities will implement it in practice and to what extent it will impact on the corporate restructuring we are currently undertaking. See “Our Corporate History and Structure—Organization Chart” and “Operating and Financial Review and Prospects—Holding Company Structure.”

On August 24, 2009, the State Administration of Taxation promulgated the Administrative Measures for Enjoyment of Tax Treaty Treatments by Non-residents (Trial), or the Administrative Measures, with the effective date on October 1, 2009. Pursuant to the Administrative Measures, the treatment under tax treaties refers to the tax liabilities that should be performed according to the PRC tax laws but can be reduced or exempted under the tax treaties. Where non-residents (including non-resident enterprises and non-resident individuals) enjoy preferential treatment under tax treaties in terms of dividends, interests, royalties or property gains, such non-residents shall apply to the competent tax authorities for examination and approval in accordance with the Administrative Measures; otherwise, they will not be able to enjoy the treatment under the tax treaties.

Value-added Tax

According to the amended Provisional Regulations of the PRC on Value-added Tax effective on January 1, 2009, and the amended Detailed Rules for the Implementation of the Provisional Regulations of the PRC on Value-added Tax effective since November 1, 2011, all organizations and individuals engaged in the sale of goods, provision of processing, repairs and replacement services, and importation of goods within the territory of the PRC are taxpayers of value-added tax. Ordinary tax payers shall pay value-added tax at the rate of 13.0% or 17.0%, while small scale tax payers shall pay value-added tax at the rate of 3.0%. According to the Notice Regarding the Application of Low Value-added Tax Rate and Simplified Method Taxation Policies to Certain Products, or the Notice, which was jointly issued by the Ministry of Finance and the State Administration of Taxation on January 19, 2009 and took effect, retrospectively, on January 1, 2009, small hydropower generation units administrated at or below the county level may choose to apply the value-added tax rate of 6.0% in accordance with the simplified method to electric power they generate. Small hydropower generation units are defined as hydropower generation units with the installed capacity of no greater than 50 MW. The value-added tax payers using simplified method cannot claim the input value-added tax credits on their purchases.

Stamp duty

According to the Provisional Rules of the People’s Republic of China on Stamp Duty and Detailed Rules for Implementation of Provisional Regulations of China on Stamp Duty as brought into effect on 1 October 1988, all institutions and individuals creating and obtaining taxable documents within China shall pay stamp duty. The list of taxable documents includes purchase and sale contracts, processing contracts, construction project contracts, property lease contracts, cargo freight contracts, warehousing and storage contracts, loan contracts, property insurance contracts, technical contracts, other documents that resemble a contract in nature; title transfer deeds; business

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account books; certificates of rights, licenses and other taxable documents specified by the Ministry of Finance.

Urban Maintenance & Construction Tax and Education Surcharges

On October 18, 2010, the State Council of the PRC released a Circular on Unifying the System of Urban Maintenance & Construction Tax and Education Surcharges for Domestic and Foreign-invested Enterprises and Individuals or (“Circular 35”) providing that, effective from December 1, 2010, the relevant regulations, rules, and policies regarding urban maintenance & construction tax and education surcharges shall be applicable to foreign-invested enterprises, foreign enterprises, and foreign individuals (FIEs). Following the release of Circular 35, on November 4, 2010, the Ministry of Finance and the State Administration of Taxation jointly issued a Circular on Issues Relating to Levying Urban Maintenance & Construction Tax and Education Surcharge on FIEs for implementation of Circular 35, which provides that urban maintenance & construction tax and education surcharges will be imposed on FIEs in respect of value-added tax, consumption tax and business tax payable on and after December 1, 2010. The urban maintenance & construction tax and education surcharges are calculated as a percentage of the value-added tax, consumption tax and business tax due. The education surcharges are levied at a unified rate at 3.0%, while the rates for urban maintenance & construction tax differ depending on the location of the taxpayer: (i) 7.0% for taxpayers located in a city; (ii) 5.0% for taxpayers located in a county and town area; and (iii) 1.0% for taxpayers located in other regions.

Foreign Currency Exchange

The principal regulations governing foreign currency exchange in China are the Foreign Currency Administration Rules amended and promulgated on August 5, 2008, and the Administration Rules of the Settlement, Sale and Payment of Foreign Exchange. Under the above-referenced rules, for current account items such as trade and service-related foreign exchange transactions, entities or individuals inside the PRC could either retain their foreign exchange income or sell them to financial institutions engaged in foreign exchange settlement and sale business (the “Authorized Financial Institutions”); additionally, they could make foreign exchange payments with their own foreign exchange or with the foreign exchange purchased from the Authorized Financial Institutions. For capital account items, the retaining or sale to the Authorized Financial Institutions of foreign exchange income (such as from direct investments, loans and investments in securities) will be subject to approval by the State Administration of Foreign Exchange, except as otherwise provided by PRC laws and regulations. Moreover, foreign exchange payments should be made to the Authorized Financial Institutions by presenting valid documentations with the payer’s own foreign exchange or with the foreign exchange purchased from the Authorized Financial Institutions, with the exception of certain foreign exchange payments that are subject to approval by the State Administration of Foreign Exchange (such as repatriation of investment outside the PRC). Capital investments by foreign-invested enterprises outside of PRC are also subject to approval by certain authorities, including but not limited to, the Ministry of Commerce, the State Administration of Foreign Exchange and the National Development and Reform Commission (or their local counterparts). Currently, PRC laws and regulations do not provide clear criteria for obtaining the State Administration of Foreign Exchange approval. Generally speaking, the State Administration of Foreign Exchange and its local branches have broad discretion on the issuance of such approval.

On August 29, 2008, the General Affairs Department of the State Administration of Foreign Exchange issued the Circular on Relevant Operating Issues concerning the Improvement of Administration of Payment and Settlement of Foreign Currency Capital of Foreign-invested Enterprises, or the Circular. According to the Circular, among other things, the RMB fund obtained from the settlement of foreign currency capital of a foreign-invested enterprise shall be used within the business scope approved by governmental authorities, and shall not be used for domestic equity investment unless otherwise provided by PRC laws or regulations. When an enterprise intends to repay a RMB loan with the RMB fund obtained from the settlement of foreign currency capital, it shall submit a statement that the loan has been used in accordance with provisions under the

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respective contract, and used within the business scope approved by the government. In case of a deviation from the business scope without authorization, or a repayment of the unused RMB loan with RMB obtained from the settlement of foreign exchange capital, the exchange administration agency shall order that corrections be made, and shall confiscate the illegal gains and impose a fine of not more than 30.0% of the amount of capital involved; in case of serious violation, a fine of not less than 30.0% of the amount of capital involved but not more than the total amount involved will be imposed.

The State Administration of Foreign Exchange Regulations on Employee Stock Options

In December 2006, the People’s Bank of China promulgated the Administrative Measures of Foreign Exchange Matters for Individuals or the People’s Bank of China Regulation. In January 2007, the State Administration of Foreign Exchange issued implementing rules for the People’s Bank of China Regulation, which, among other things, specified approval requirements for certain capital account transactions such as a PRC citizen’s participation in the equity incentive plan of an overseas publicly listed company. On March 28, 2007, the State Administration of Foreign Exchange issued the Operating Procedures on Administration of Foreign Exchange regarding PRC Individuals’ Participation in Employee Share Ownership Plans and Employee Stock Option Plans of Overseas Listed Companies, or the Stock Option Rule. The purpose of the Stock Option Rule is to regulate foreign exchange administration of PRC citizens who participate in equity incentive plans of overseas-listed companies. The Stock Option Rule was replaced by the Notice of the State Administration of Foreign Exchange on Issues Related to Foreign Exchange Administration in Domestic Individuals’ Participation in Equity Incentive Plans of Companies Listed Abroad, or the New Stock Option Rule, which was issued on February 15, 2012.

According to the New Stock Option Rule, PRC residents who are granted shares or stock options by companies listed on overseas stock exchanges based on the stock incentive plans are required to register with the State Administration of Foreign Exchange or its local branches. Pursuant to the New Stock Option Rule, PRC residents participating in the stock incentive plans of overseas listed companies shall retain a qualified PRC agent, which could be a PRC subsidiary of such overseas publicly-listed company or another qualified institution selected by such PRC subsidiary, to conduct the registration with the State Administration of Foreign Exchange and other procedures with respect to the stock incentive plans on behalf of these participants. Such participants must also retain an overseas entrusted institution to handle matters in connection with their exercise of stock options, purchase and sale of corresponding stocks or interests, and fund transfer. In addition, the PRC agents are required to amend the registration the State Administration of Foreign Exchange with respect to the stock incentive plan if there is any material change to the stock incentive plan, the PRC agents or the overseas entrusted institution or other material changes. The PRC agents shall, on behalf of the PRC residents who have the right to exercise the employee share options, apply to the State Administration of Foreign Exchange or its local branches for an annual quota for the payment of foreign currencies in connection with the PRC residents’ exercise of the employee share options. The foreign exchange proceeds received by the PRC residents from the sale of shares under the stock incentive plans granted and dividends distributed by the overseas listed companies must be remitted into the bank accounts in the PRC opened by the PRC agents before distribution to such PRC residents. In addition, the PRC agents shall file each quarter the form for record-filing of information of the Domestic Individuals Participating in the Stock Incentive Plans of Overseas Listed Companies with the State Administration of Foreign Exchange or its local branches.

We and our PRC employees who have been granted stock options are subject to the New Stock Option Rule. If we or our PRC employees fail to comply with the New Stock Option Rule, we and/or our PRC employees may face sanctions imposed by the State Administration of Foreign Exchange or other PRC government authorities.

In addition, the State Administration for Taxation has issued circulars concerning employee stock options. Under these circulars, our employees working in China who exercise stock options will be subject to PRC individual income tax. Our PRC subsidiary has obligations to file documents related to employee stock options with relevant tax authorities and to withhold individual income

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taxes of those employees who exercise their stock options. If our employees fail to pay their income taxes, or we fail to withhold them, we may face sanctions imposed by the tax authorities or other PRC government authorities.

Dividend Distribution

The principal PRC regulations governing the distribution of dividends by foreign-invested enterprises include:

• The Sino-foreign Equity Joint Venture Law (1979), as amended;

• The Regulations of Implementation of the Sino-foreign Equity Joint Venture Law (1983), as amended;

• The Wholly Foreign-owned Enterprise Law (1986), as amended;

• The Detailed Rules of the Wholly Foreign-owned Enterprise Law (1990), as amended;

• Foreign Currency Administration Rules (1996), as amended;

• The Company Law of China (1993), as amended;

• The Enterprise Income Tax Law of China; and

• The Implementation Regulations of Enterprise Income Tax Law of China.

Under the above-mentioned regulations, foreign-invested enterprises in China may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, wholly foreign-owned enterprises in China are required to set aside at least 10.0% of their after-tax profits each year, if any, to fund the reserve fund unless such reserve fund has reached 50.0% of their respective registered capital and to set aside a percentage of their after-tax profits to their employee bonus and welfare fund which is decided by their respective board of directors. Sino-foreign equity joint ventures are required to set aside their reserve fund, enterprise development fund and employee bonus and welfare fund at percentages that are decided by their respective board of directors. PRC domestic companies are required to set aside at least 10.0% of their after-tax profits each year, if any, to fund their respective statutory reserve fund unless such fund has reached 50.0% of their respective registered capital. These reserves are not distributable as cash dividends.

Regulations Relating to Labor and Social Insurance

We are subject to various labor laws and regulations in the PRC including but not limited to the PRC Labor Law, the PRC Labor Contract Law, the Implementation Regulations of the PRC Labor Contract Law, the PRC Social Insurance Law (promulgated on October 28, 2010 with effect from July 1, 2011), the Regulations of Insurance for Work-related Injury, the Interim Provisions on Registration of Social Insurance and the Interim Regulations on the Collection and Payment of Social Insurance Premiums. Pursuant to the PRC Labor Law and the PRC Labor Contract Law, labor contracts in written form shall be executed to establish labor relationship between our employees and our company. We must provide wages which are no lower than local minimum wage standards to our employees. We are required to establish a system for labor safety and sanitation, strictly abide by State rules and standards and provide relevant education to our employees. Violations of the PRC Labor Contract Law and the PRC Labor Law may result in the imposition of fines and other administrative liabilities. Criminal liability may arise in serious cases.

According to the Regulations of Insurance for Work-related Injury effective as of January 1, 2004 (which was amended on December 8, 2010 with effect from January 1, 2011), employers in China shall pay the work-related injury insurance fees for their employees, and their employees do not pay the work related injury insurance fees.

According to the Interim Regulation on the Collection and Payment of Social Insurance Premiums effective as of January 22, 1999 and Interim Measures concerning the Management of the Registration of Social Insurance effective as of March 19, 1999, employers in China shall conduct the

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registration of social insurance with the competent authorities, and make contributions to the basic pension insurance, basic medical insurance and unemployment insurance for their employees.

According to Interim Measures concerning the Maternity Insurance for Employees of Enterprises effective as of January 1, 1995, the employers in China shall pay the maternity insurance fees not more than one percent of an employee’s total salary for their employees, and their employees do not pay the maternity insurance fees.

According to Regulations on the Management of Housing Fund effective as of April 3, 1999, employers in China shall conduct the registration of housing fund with the competent authorities, open the relevant account with the designated banks and pay the housing fund equal to not less than five percent of an employee’s monthly average salary in the last year for their employees.

On October 28, 2010, Social Insurance Law of the PRC was promulgated, which took effect on July 1, 2011. Pursuant to the Social Insurance Law, the government will establish a social insurance system including basic endowment insurance, basic medical insurance, employment injury insurance, unemployment insurance and maternity insurance. An employer must, within 30 days from the date of its formation, apply to local social insurance agency for social insurance registration. Where an employer fails to apply for social insurance registration, the social insurance administrative department will order it to take remedial measures within a prescribed time limit. Failure to implement these measures within the prescribed time limit will lead to a fine of 1 to 3 times the amount of the social insurance premiums due and payable. The social insurance administrative department may also impose a fine of not less than RMB500 but not more than RMB3,000 upon persons primarily responsible for such failure.

According to the Interim Measures for Participation in the Social Insurance System by Foreign Nationals Working within the Territory of China, effective on October 15, 2011, foreigner nationals legally recruited and employed by enterprises duly registered within the territory of China must participate in basic social insurance, with social insurance premiums to be contributed respectively by themselves and their employer as required.

Regulations Relating to Construction and Work Safety

Our operations are subject to extensive legislation and regulation relating to construction and work safety matters, including the PRC Labor Law, the PRC Construction Law, the PRC Safe Production Law, the Supervision Measures on the Safe Production of Electric Power, the Administrative Regulation on Work Safety of Construction Projects, the Provisions on the Administration of Work Safety in the Construction of Water Resources Projects and other relevant laws, regulations, national standards and industrial standards.

Pursuant to the PRC Labor Law, an employer should establish and enhance its system for labor safety, strictly abide by the PRC rules and standards on labor safety, educate employees to prevent occupational injury, and provide employees with labor safety conditions meeting the government regulations and necessary articles of labor protection.

According to the PRC Construction Law, the survey, design, and construction of projects must meet requirements of the State on safety standards of construction projects. Pursuant to the Administrative Regulation on Work Safety of Construction Projects enacted by the State Council and the Provisions on the Administration of Work Safety in the Construction of Water Resources Projects promulgated by the Ministry of Water Resources, entities involved in the work safety of construction projects, including, without limitation, construction entities, surveying entities, designing entities, supervision entities, consultancy entities, must comply with laws and regulations relating to safe production, ensure the safe construction and production of water resources projects, and assume liability for the work safety of water resources construction projects.

The PRC Safe Production Law provides that any entity that is not sufficiently equipped to ensure safe production may not engage in production and business operation activities and entities must provide production safety education and training programs to employees. The design, manufacture, installation, use, checking and maintenance of our safety equipment are required to conform to applicable national or industrial standards. In addition, it is required that labor

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protection equipment must meet the national or industrial standards and that entities must supervise and educate their employees to wear or use such equipment according to the prescribed rules.

In accordance with the Supervision Measures on the Safe Production of Electric Power, power plants are responsible for maintaining their safe production. Power plants are required to report to the State Electricity Regulatory Commission, State Administration of Work Safety, and relevant local government authorities, within 24 hours, any fatal accident, grid accident, equipment damage accident, dam collapse accident or fire accident which is serious or extraordinary.

Regulations Relating to Resettlement of Relocated Residents

In accordance with the PRC Water Law, the PRC shall apply the policies of “resettlement of relocated residents for development purposes” to the resettlement of relocated residents in construction of water projects, and shall appropriately arrange the production and lives of the resettled relocated residents and protect their lawful rights and interests according to the principles of providing compensation and subsidy in the early stage and support in the latter stage. The resettlement of relocated residents shall be conducted at the same pace as that of the project construction. The construction entity shall, according to the environment capacity of the area of resettlement and the principle of sustainable development, formulate a plan for relocated residents resettlement in accordance with local conditions, and the relevant local people’s government shall organize the implementation of the plan after it is legally approved. The expenses arising from the resettlement of relocated residents shall be included in the investment plan for project construction.

The State Council of the PRC promulgated the amended Regulation on Land Requisition Compensation and Resettlement of Relocated Residents for Construction of Large and Medium-sized Water Resources and Hydropower Projects, or the Requisition and Resettlement Regulation, on July 7, 2006 effective from September 1, 2006. Pursuant to the Requisition and Resettlement Regulation, relevant governmental authorities shall not approve or verify the construction of those large and medium-sized water resources and hydropower projects for which a plan for relocated residents’ resettlement (“Plan”) has not been formulated or approved. Prior to the commencement of the construction of large and medium-sized water resources and hydropower projects, the project entity shall enter into the Plan with the people’s government at provincial, municipal or county level located at the relocated residents’ regions and resettlement. In addition, the project entity is required to fund a relocated residents’ resettlement fund for the local government with which it has entered into the Plan. The staged completion acceptance or overall completion acceptance for large and medium-sized water resources and hydropower projects shall not be conducted if the relocated residents’ resettlement has not passed acceptance. In the case of a violation of the Requisition and Resettlement Regulation, the project entity shall be ordered to rectify the violation and pay fines ranging from RMB100,000 to RMB500,000.

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C. Organizational Structure

Organizational Chart

The following diagram illustrates our corporate operating structure as of the date of this report:

All of our PRC subsidiaries are organized as wholly foreign-owned enterprises established pursuant to the Law of China on Wholly Foreign-Owned Enterprises, except for Yunhe County Shapulong Hydropower Generation Co., Ltd. and Henan Wuyue Storage Power Generating Co., Ltd., which are equity joint ventures established pursuant to the Law of China on Sino-Foreign Equity Joint Ventures, and Longquan Ruiyang Cascade II Hydroelectric Co., Ltd., Yingjiang County Qinrui Husahe Hydropower Co., Ltd., Shaowu City Jinlong Hydroelectric Co., Ltd., Shaowu City Jintang Hydroelectric Co., Ltd., Shaowu City Jinwei Hydroelectric Co., Ltd., which are domestic companies established pursuant to the Company Law of China.

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D. Property, Plant and Equipment

See “Information on the Company—Our Hydroelectric Power Assets.”

ITEM 4A. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

You should read the following discussion and analysis of financial condition and results of operations in conjunction with the section entitled “Selected Consolidated and Other Financial and Operating Data” and the financial statements and related notes included elsewhere in this annual report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” and elsewhere in this annual report.

A. Operating Results

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 on July 10, 2006 to acquire existing small hydroelectric assets in China and we believe that we currently are the PRC’s largest independent small hydroelectric power producer. Our primary business is to identify, evaluate, acquire, develop, construct, finance and operate hydroelectric power projects in China. 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, and general and administrative expenses, as well as the cost of financing our acquisition of these hydroelectric power projects and necessary capital contributions. We were formed as an exempted company under the laws of the Cayman Islands to serve as a vehicle for the acquisition of operating hydroelectric power projects and plants under construction in China. We conduct substantially all of our business through our PRC operating subsidiaries and investment company.

We currently wholly own twenty three operating hydroelectric power projects and have controlling interests in three operating hydroelectric power projects. Our operating hydroelectric power projects are located in four provinces in China: Zhejiang, Fujian, Yunnan and Sichuan. Installed capacity at our plants (including Yuanping) reached 58.0 MW, 271.0 MW, 376.6 MW, 548.8 MW and 563.8MW at December 31, 2007, 2008, 2009, 2010 and 2011, respectively.

Our activities during the year ended December 31, 2007 were comprised of our acquisition and subsequent operation of three completed projects and one project under construction. Our revenues in 2007 were $2.4 million while our cost of revenues was $0.8 million, resulting in a gross profit of $1.6 million. After deducting operating and other expenses we showed a net loss for 2007 of $4.6 million. We sold 108.3 million kWh of electricity produced at our hydroelectric power projects in 2007 during the periods in which we operated them, at an effective tariff of RMB0.18 per kWh.

Our activities during the year ended December 31, 2008 were comprised of our acquisition and subsequent operation of six additional completed projects and another project under construction. Excluding Shapulong, our revenues in the year ended December 31, 2008 were $14.7 million while our cost of revenues was $5.9 million from continuing operations, resulting in a gross profit of $8.8 million from continuing operations. After deducting operating and other expenses, including $0.5 million representing our proportional share of losses of Shapulong, we reported a net loss for 2008 of $3.7 million from continuing operation. Excluding Shapulong, we sold 334.0 million kWh of electricity produced at our hydroelectric power projects in 2008 during the periods in which we operated them, at an effective tariff of RMB0.33 per kWh.

In 2008, we completed three additional private placements with institutional investors. In January 2008, we issued $150.0 million of Series A convertible redeemable preferred shares. In July

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and August, 2008 we issued an aggregate of $129.0 million of Series B convertible redeemable preferred shares.

Our activities during the year ended December 31, 2009 were comprised of our completion of construction of the Zhougongyuan, Jiulongshan and Binglangjiang II hydroelectric power projects, acquisition of the Ruiyang hydroelectric power project, acquisition of the remaining 50.0% equity interest in Shapulong and operation of our twelve completed projects. Our revenues from continuing operations for the year ended December 31, 2009 were $34.3 million while our cost of revenues was $16.4 million, resulting in a gross profit of $17.9 million from continuing operations. After deducting operating and other expenses, including interest expenses of $13.4 million, we reported a net loss for the year ended December 31, 2009 of $19.5 million from continuing operations. We sold 754.6 million kilowatt hours of electricity produced at our hydroelectric power projects in 2009, at an effective tariff of RMB0.34 per kWh. In October 2009, we issued an aggregate of $20.0 million Series C convertible redeemable preferred shares. On October 22, 2009, we entered into a capital injection agreement with Henan Lantian Group to subscribe for a 79.0% equity interest in Henan Wuyue Storage Power Generation Co., Ltd., which owns the right to develop a pumped storage hydropower project of 1,000.0 MWs in Henan province.

Our activities during the year ended December 31, 2010 were comprised of our acquisition of 79.0% controlling interest in Henan Wuyue Storage Power Generation Co., Ltd., acquisition of Husahe, Hengda, Xineng, Xiaopengzu and Jinling hydroelectric power projects, acquisition of the controlling interests held by Jinling in three of its subsidiaries, including 55.0% controlling interest in Jinlong Hydroelectric power project, 74.0% controlling interest in Jintang Hydroelectric power project, and 74.0% controlling interest in Jinwei Hydroelectric power project, and our operation of our twenty completed projects. Our revenues from continuing operations for the year ended December 31, 2010 were $63.3 million while our cost of revenues was $24.0 million, resulting in a gross profit of $39.3 million from continuing operations. After deducting operating and other expenses, including interest expense of $15.2 million, we reported a net income for the year ended December 31, 2010 of $2.1 million from continuing operations. We sold 1, 397.8 million kilowatt hours of electricity produced at our hydroelectric power projects in 2010, at an effective tariff of RMB0.33 per kWh.

On January 25, 2010, the Company completed an initial public offering (“IPO”), whereby the Company issued 6,000,000 units of securities at $16.00 per unit. Each unit consists of one American Depository Share (“ADS”) priced at $14.8 and one warrant priced at $1.2. Each ADS represents three ordinary shares and each warrant entitles the holder to purchase three ordinary shares for an exercise price of $15.0. The IPO yielded aggregate gross proceeds of $96.00 million. The proceeds, net of applicable expenses, will be used to acquire hydroelectric operating companies and assets and develop new hydroelectric power projects in China. The proceeds will also be used for working capital and general corporate purposes.

On March 23, 2010, we completed our initial capital injection of RMB 32.5 million ($4.8 million) to the Wuyue pumped storage hydropower project. However, the project has been largely at a standstill since the acquisition. We expect the project will continue to be at a standstill and have no intention to make further investments in the project. As a result, we recognized in the year ended December 31, 2011, an impairment loss attributable to the shareholders in the amount of $5.0 million.

Our activities during the year ended December 31, 2011 were primarily comprised of our acquisition of Dazhaihe hydroelectric power project, the acquisition of remaining 10.0% equity interest in Pingnan County Wangkeng Hydroelectric Co., Ltd., and our operation of twenty-seven completed projects including Yuanping which the results were reflected as discontinued operations.

On December 3, 2011, we entered into an equity transfer agreement to sell our Yuanping hydroelectric power project, a 16.0 MW project located in Fujian province, for total consideration of $22.2 million, including assumption of certain bank loans by the buyer. The sale transaction was completed on March 2, 2012. We have classified Yuanping as a discontinued operation and have adjusted our consolidated statements of operations for both 2009 and 2010 accordingly. Our revenues from continuing operations for the year ended December 31, 2011 were $57.5 million, while our cost of revenues from continuing operations was $32.5 million,

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resulting in a gross profit from continuing operations of $25.0 million. After deducting operating and other expenses, including interest expense of $26.6 million, we reported a net loss from continuing operations of $55.3 million for the year ended December 31, 2011. We sold 1,331.9 million kilowatt hours of electricity produced at our hydroelectric power projects in 2011, at an effective tariff of RMB0.30 per kWh.

On August 19, 2011, we sold 8,662,509 common shares (equivalent to 2,887,503 ADSs) at $1.1544 per share (equivalent to $3.4632 per ADS) to Vicis Capital Master Fund by way of a partial exercise of an existing warrant held by Vicis Capital Master Fund, which was issued to Vicis Capital Master Fund in April 2007 and allows Vicis Capital Master Fund to purchase up to 18,666,666 ordinary shares at an exercise price of $5.00 per share. The transaction yielded aggregate gross proceeds of $10.0 million. On October 27, 2011, the Company signed a warrant exercise agreement with certain members of the China Hydro LLC, to amend the Founders Warrants agreement. Pursuant to the amendment, these members exercised 31,072 units of their warrants at the adjusted exercise price of US$1.15 per share to purchase 31,072 ordinary shares from the Company and are entitled to purchase up to 35,892 ordinary shares from the Company at US$1.15 per share or the adjusted exercise price (“New Founders’ Warrants”). The proceeds, net of applicable expenses, have been used for working capital and general corporate purposes.

In 2011, hydrological conditions were the factor with the greatest impact on our results of operations. Based on extensive historical precipitation data and our internal modeling, we believe that the final precipitation total for all of fiscal 2011 represented the very low probability of occurring in any given year. We believe that 2011 is not a typical or representative year in terms of hydrology and the probability of precipitation levels in 2012 again being so far below average levels appears to be low, although we cannot assure you we will not experience similarly unfavorable hydrology conditions in 2012. Another challenge we confronted in 2011 was the tight bank financing market in China due to central government policies intended to control inflation. This has prevented us from closing on certain loans that were previously agreed upon and from refinancing certain existing project level bank loans as has historically been the practice. As a result, we have been required to seek to raise capital through other means.

Our Acquisitions

We set forth below the key facts regarding our acquisitions to date. U.S. dollar translations provided below are derived from our consolidated financial statements presented elsewhere in this annual report.

Acquisitions Completed in 2007

In April 2007, we completed our purchase of Yunnan Huabang Electric Power Development Co., Ltd., the owner of the Binglangjiang I hydroelectric power project and developer of the Binglangjiang II hydroelectric power project, for a total cash consideration of RMB50.0 million ($6.5 million). This acquisition was accounted for as a purchase using the purchase method of accounting. We also incurred acquisition costs of $50,000 in connection with the transaction. 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.

In May 2007, we completed our purchase of the Liyuan hydroelectric power project, which is now owned by our subsidiary Sichuan Huabang Hydroelectric Development Co., Ltd., for a total cash consideration of RMB77.0 million ($10.0 million). This was accounted for as a purchase using the purchase method of accounting. We also incurred acquisition costs of $0.3 million in connection with the transaction.

In December 2007, we completed our purchase of a 50.0% interest in Yunhe County Shapulong Hydropower Generation Co., Ltd., the owner of the Shapulong hydroelectric power project, for a total cash consideration of RMB33.0 million ($4.5 million). We also incurred acquisition costs of $0.2 million in connection with the transaction.

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Acquisitions Completed in 2008

In January 2008, we completed our purchase of Zhejiang Province Jingning Yingchuan Hydroelectric Development Co., Ltd., the owner of the Yingchuan hydroelectric power project, for a total consideration of RMB304.0 million ($42.3 million), which was comprised of a cash consideration of RMB291.4 million ($40.6 million) and a payment of RMB12.6 million ($1.8 million) to the seller to settle all of the liabilities of the Yingchuan hydroelectric power project. This acquisition was accounted for as a purchase using the purchase method of accounting. We also incurred acquisition costs of $0.1 million in connection with the transaction.

In January 2008, we completed our purchase of Qingtian Wuliting Hydroelectric Development Co., Ltd., the owner of the Wuliting hydroelectric power project, for a purchase price of RMB342.1 million ($47.6 million) which was comprised of a cash consideration of RMB206.9 million ($28.8 million) and a payment of RMB135.3 million ($18.8 million) to the seller to settle all of the liabilities of the Wuliting hydroelectric power project. This acquisition was accounted for as a purchase using the purchase method of accounting. We also incurred acquisition costs of $0.2 million in connection with the transaction.

In January 2008, we completed our purchase of Suichang County Jiulongshan Hydroelectric Development Co., Ltd., the owner of the Zhougongyuan hydroelectric power project, for a purchase price of RMB157.3 million ($21.9 million) in cash. In addition, we are obligated to make a capital injection into this subsidiary of RMB250.0 million ($34.8 million) to fund the construction of the Zhougongyuan hydroelectric power project, the payment of which will be completed in 2009. This acquisition was accounted for as an asset acquisition. We also incurred acquisition costs of $0.1 million in connection with the transaction.

In October 2008, we completed our purchase of a 90.0% equity interest in Sanming Zhongyin Banzhu Hydroelectric Co., Ltd., the owner of the Banzhu hydroelectric power project, for a purchase price of RMB134.2 million ($19.6 million) in cash. This acquisition was accounted for as a purchase using the purchase method of accounting. We also incurred acquisition costs of $91,000 in connection with the transaction. We committed to make a capital injection of RMB104.9 million ($15.4 million) to this subsidiary 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 out of funds other than the proceeds of the initial public offering. In addition, pursuant to a supplemental agreement with the shareholders at that 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.

In October 2008, we completed our purchase of a 90.0% equity interest in Pingnan County Wangkeng Hydroelectric Co., Ltd., the owner of the Wangkeng hydroelectric power project, for a purchase price of RMB220.5 million ($32.3 million) in cash. This acquisition was accounted for as a purchase using the purchase method of accounting. We also incurred acquisition costs of $0.1 million in connection with the transaction.

In October 2008, we completed our purchase of Pingnan County Yuanping Hydroelectric Co., Ltd., the owner of the Yuanping hydroelectric power project, for a purchase price of RMB58.0 million ($8.5 million) in cash. This acquisition was accounted for as a purchase using the purchase method of accounting. We also incurred acquisition costs of $88,000 in connection with the transaction.

In October 2008, we completed our purchase of Pingnan County Yuheng Hydropower Co., Ltd., the owner of the Yuheng hydroelectric power project, for a purchase price of RMB121.0 million ($17.7 million) in cash. This acquisition was accounted for as a purchase using the purchase method of accounting. We also incurred acquisition costs of $92,000 in connection with the transaction.

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Acquisitions Completed in 2009

In March 2009, we acquired the remaining 10.0% equity interest in Sanming Zhongyin Banzhu Hydroelectric Co., Ltd. for a purchase price of RMB17.0 million ($2.5 million) in cash. This acquisition was accounted for as an equity transaction.

In August 2009, we completed the acquisition of a 13.0% equity interest in Yunhe County Shapulong Hydropower Generation Co. Ltd. for a purchase price of RMB8.6 million ($1.3 million) and the remaining 37.0% equity interest in the company for a purchase price of RMB21.0 million ($3.1 million). Since we owned a noncontrolling interest in Yunhe County Shapulong Hydropower Generation Co. Ltd. immediately before obtaining control through our acquisitions of the 13.0% and 37.0% equity interest, we have remeasured the pre-existing 50.0% equity interest at fair value of RMB29.6 million ($4.3 million) and recognized a gain of $105.0 from the remeasurement in “Other Income, net” on the accompanying Statements of Operations. The acquisition will be accounted for as a business combination achieved in stages using the acquisition method of accounting.

In August 2009, we completed our purchase of Longquan Ruiyang Cascade II Hydroelectric Co., Ltd., the owner of the Ruiyang hydroelectric power project, for a purchase price of RMB160.0 million ($23.4 million) in cash. The acquisition was accounted for as a business combination using the acquisition method of accounting.

Acquisitions Completed in 2010

In March 2010, we completed our capital injection to subscribe for a 79.0% controlling equity interest in Henan Wuyue Storage Power Generation Co., Ltd. which owns the right to develop a pumped storage hydropower plant of 1,000.0 MW in Henan province. After the first installment payment of RMB32.5 million ($4.8 million), we were obliged to transfer RMB130.0 million (approximately $19.4 million) cash into Wuyue in two years’ time as capital injections to fund the construction of the pumped storage hydroelectric power project, and will ultimately obtain 79.0% equity interest in Wuyue. This capital injection was accounted for as an asset acquisition.

In March 2010, we completed our purchase of Yingjiang County Qinrui Husahe Hydropower Co. Ltd., which owns and operates Mangxian, Husahe Cascade III and Husahe Cascade IV hydroelectric power projects, with a total installed capacity of 18.7 MW in Yingjiang County, Yunnan province in the PRC for a purchase price of RMB115.0 million ($16.8 million). This acquisition was accounted for as a business combination using the acquisition method of accounting.

In June 2010, we completed our purchase of Fugong County Hengda Hydroelectric Development Co. Ltd. which owns and operates two operating projects including Aluhe, Zilenghe with a total installed capacity of 35.2 MW, for a purchase price of RMB65.0 million ($9.6 million). This acquisition was accounted for as a business combination using the acquisition method of accounting.

In August 2010, we completed our purchase of Fugong County Xineng Hydroelectric Development Co. Ltd. which owns and operates Latudi hydroelectric project with an installed capacity of 18.9MW, for a purchase price of RMB31.3 million ($4.6 million). This acquisition was accounted for as a business combination using the acquisition method of accounting.

In September 2010, we completed our purchase of Luquan County Xiaopengzu Hydroelectric Development Co. Ltd. which owns and operates a 44.0 MW hydroelectric project in Luquan County, Yunnan province in the PRC, for a purchase price of RMB150.0 million ($22.1 million). This acquisition was accounted for as a business combination using the acquisition method of accounting.

In December 2010, we completed our purchase of Shaowu City Jinling Hydropower Co. Ltd.(hereafter “Jinling”), the owner of the Jinling hydroelectric power project, together with Jinling’s 55.0% controlling interest in Shaowu City Jinlong Hydropower Co. Ltd., the owner of the Jinlong hydroelectric power project, Jinling’s 74.0% controlling interest in Shaowu City Jintang Hydropower Co. Ltd., the owner of the Jintang hydroelectric power project, and Jinling’s 74.0% controlling interest in Shaowu City Jinwei Hydropower Co. Ltd., the owner of the Jinwei hydroelectric power project, for a total purchase price of RMB75.1 million ($11.3 million). These four companies own and operate a 55.4 MW group of six projects in Fujian province, including Qianling, Jinjiu,

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Dongguan, Jinlong, Jinwei and Jintang hydroelectric projects. This acquisition was accounted for as a business combination using the acquisition method of accounting based on the available and obtainable information as of December 31, 2010.

Acquisitions and Asset Sale in 2011

In January 2011, we completed our purchase of the remaining 10.0% equity interest in Pingnan County Wangkeng Hydroelectric Co., Ltd. for a purchase price of RMB39.0 million ($5.9million). This acquisition was accounted for as an equity transaction.

In April 2011, we completed our purchase of Jinping Kanghong Hydroelectric Development Co., Ltd., which owns and operates Dazhaihe hydroelectric project, a 15 MW project in Yunnan province for a purchase price of RMB59.0 million ($9.0 million). This acquisition was accounted for as a business combination using the acquisition method of accounting.

In December 2011, we entered into an Equity Purchase and Sale Agreement with a third-party buyer to sell Pingnan County Yuanping Hydroelectric Co., Ltd., which owns and operates Yuanping hydroelectric power project, a 16 MW project located in Fujian province, for a total consideration of $22.2 million, including the assumption of debt by the buyer. The transaction was completed on March 2, 2012.

Impact of Acquisitions on our Results of Operations

The aforementioned acquisitions resulted in a significant increase in the book value of our net property, plant and equipment, our intangible assets, goodwill, revenues and gross profit.

Our 2007 consolidated results of operations reflect approximately eight months and seven months of revenue, cost of revenue, including additional depreciation and amortization expense, and selling, general and administrative expenses or G&A expenses, of the Binglangjiang I and Liyuan hydroelectric power projects, respectively.

Our 2008 consolidated results of operations reflect approximately eleven months of revenue, cost of revenue, including additional depreciation and amortization expense, and G&A expenses of the Yingchuan and Wuliting hydroelectric power projects, and approximately two months of revenue, cost of revenue, including additional depreciation and amortization expense, and G&A expenses of each of the Banzhu, Wangkeng, Yuanping and Yuheng hydroelectric power projects acquired in 2008. Our 2008 consolidated results of operations also reflect an additional four and seven months of revenue, cost of revenue, including depreciation and amortization expense and G&A expenses of each of the Binglangjiang I and Liyuan hydroelectric power projects, purchased in 2007.

Our consolidated results of operations in 2009 reflect approximately five months of revenue, cost of revenue, including additional depreciation and amortization expenses, and G&A expenses of the Shapulong and Ruiyang projects acquired in 2009. Our 2009 consolidated results of operations also reflect a full year of revenue, cost of revenue, including depreciation and amortization expenses, and G&A expenses relating to the six acquisitions made in 2008.

Our consolidated results of operations in 2010 reflect approximately nine, six, four and three months of revenue, cost of revenue, including additional depreciation and amortization expense, and G&A expenses of each of the Husahe, Hengda, Xineng and Xiaopengzu projects acquired in 2010. Our consolidated results of operations in 2010 also reflect the effect of a full year of revenue, cost of revenue, including depreciation and amortization expense, and G&A expenses relating to the two acquisitions made in 2009 and the projects put into operation in 2009.

Our consolidated results of operations in 2011 reflect eight months of revenue, cost of revenue, including additional depreciation and amortization expense, and G&A expenses of the Dazhaihe project acquired in 2011. Our consolidated results of operations in 2011 also reflect the effect of a full year of revenue, cost of revenue, including depreciation and amortization expense, and G&A expenses relating to the eight acquisitions made in 2010. We have classified Yuanping as a discontinued operation and have adjusted our consolidated statements of operations for both 2009 and 2010 accordingly.

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Going Concern

As of December 31, 2011, we had a working capital deficiency of approximately $138.7 million. Due to our working capital deficiency, our independent registered public accountant has stated in its report dated April 27, 2012 with respect to our financial statements as of and for the year ended December 31, 2011 that these circumstances raise substantial doubt about our ability to continue as a going concern. We are currently seeking to raise funds through various means as described below. Our ability to continue as a going concern is dependent upon obtaining the necessary financing to meet our current and future liquidity needs.

Management has been closely monitoring our costs and intends to restrict such costs to those expenses that are essential to our operations. Management has been actively pursuing various means of securing additional financing, including assets sales, borrowings from banks and other financial and non-financial institutions and investments from private investors. In 2011, we raised additional working capital in the amount of approximately $10.0 million from the sale of common stock to Vicis Capital Master Fund. In the first quarter of 2012, we raised a total of $11.7 million through borrowings from banks and other non-financial institution. However, we cannot make any assurances that our cost reduction efforts will be effective or that any additional financing will be completed on a timely basis, on acceptable terms or at all. In the event that we fail to raise funds sufficient to meet our liquidity needs, we may be forced to substantially curtail our operations or otherwise take measures that would materially and adversely affect our business, results of operations and business prospects.

Our financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. Should the going concern assumption not be appropriate and we are not able to realize our assets and settle our liabilities, commitments and contingencies in the normal course of operations, adjustments would be required to our consolidated financial statements to the amounts and classifications of assets and liabilities, and these adjustments could be significant.

Factors Affecting Our Results of Operations

The most significant factors that affect our financial condition and results of operations are:

• availability and cost of debt financing;

• tariffs;

• hydrological conditions;

• production efficiency of our hydroelectric power projects;

• ability to expand through strategic acquisitions; and

• depreciation of property, plant and equipment and amortization of intangible assets.

General Factors Affecting Our Results of Operations

We have benefited significantly from the growth of the industrial base, increase in consumer consumption of electricity and overall economic growth in China, which has contributed to a significant increase in electricity demand. China’s electricity consumption grew 11.7% from 4,190 TWh in 2010 to 4,690 TWh in 2011, according to the China Electricity Council. Renewable energy has become a strong driving force contributing to the growth in capacity. Reform of the PRC power industry, in particular support for foreign investment in hydroelectric power, has assisted our rapid entry into and growth in the PRC’s small hydroelectric power market. Deregulation of the industry and policy support for the purchase of hydroelectric power will, we believe, in the long-term result in increasing tariffs for hydroelectric power in China. However, although hydroelectric power currently is the lowest -cost source of electricity in the PRC, any adverse changes in the economic growth or regulatory environment in China may have a materially adverse effect on the demand for our electricity or our ability to operate in the PRC market, which in turn may materially adversely, affect our results of operations.

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Specific Factors Affecting Our Results of Operations

Availability and cost of debt financing

We seek to improve shareholder returns through increasing our financial leverage at reasonable rates of interest, and we seek to enter into discussions with both PRC and international financial institutions to arrange credit facilities to support our future acquisitions. To the extent such financing is unavailable in the PRC, for policy reasons or otherwise, we are unable to raise debt financing in the international markets for any reason or such financing is unavailable at reasonable rates, our ability to increase our leverage for further acquisitions, and thus our revenue growth, will be reduced, and our ability to meet our liquidity needs will be affected. In 2011, we have not be able to refinance certain existing project level bank loans as has historically been the practice due to the central government’s monetary policies aiming at restricting bank lending and reducing inflation. As a result, we had to seek funding from alternative sources, including through the sale of the Yuanping hydroelectric power project. See “—Going Concern” and “—Liquidity and Capital Resources” and “Risk Factors—Risks Relating to our Company and the PRC Hydroelectric Power Industry—Our liquidity position poses risk to our operations.”

Tariffs

Due to the historical mechanisms used by the PRC government to set on-grid tariffs, on-grid tariffs for renewable energy producers have until relatively recently been lower than on-grid tariffs for thermal power projects. We believe that through continued policy support from the PRC government, renewable energy throughout China, including hydroelectric power, will in the long-term achieve on-grid tariffs equal to those for thermal power. This is already the case in Zhejiang province, where heavy demand for electricity and insufficient supply has made the on-grid tariff for hydropower comparable with many thermal plants during peak hours. We believe the move to market pricing for hydroelectric power on-grid tariffs will depend on (i) the continued relatively high price of coal in the PRC, (ii) the absence of significantly cheaper sources of other renewable energy and (iii) the enforcement of laws requiring the purchase by power grids of electricity from renewable energy generators. If the level of coal prices in the PRC were to drop significantly, a cheaper form of renewable energy were to be discovered and implemented throughout China or government support for hydroelectric power and the reform of on-grid tariff setting were to be withdrawn, we might not realize these increases in tariffs or tariffs may decrease, which could materially adversely affect our future revenues. However, to date we have not experienced a deterioration in our tariffs, and expect the tariff for hydroelectric power in the PRC to continue to increase in the medium-term. For provinces where our tariff is equal or close to that for thermal power, notably in Zhejiang and Fujian provinces, we have not experienced a decline in tariffs as the price of electricity is still driven primarily by the cost of generating thermal power. This is unlikely to diminish in the near-term given the high cost of transporting coal within China to thermal power projects, the built up losses at these thermal power projects, the timing difference between the setting of power tariffs and the fluctuation of coal prices and the PRC government’s desire to maintain pricing stability.

We believe in Sichuan and Yunnan provinces, where the price for hydropower is well below that for thermal power, the price for hydropower will increase in the near-term and medium-term through the policy drive to bring electricity to the rural areas where our hydroelectric power projects are located.

We seek to secure and retain favorable tariffs for each of our hydroelectric power projects by maintaining good relations with the local power grids and increasing our importance to the power grid by continuing to be a reliable supplier of peak power, power supplied from 8:00 a.m. to 10:00 p.m. We are accomplishing this through the following means:

• maintaining a good working relationship with the grid’s dispatch control team, with whom our hydroelectric power project managers communicate on a daily basis;

• providing technical cooperation and support to the local grid by sharing hydrology and operations data; and

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• conducting thorough and accurate forecasts of our hydropower generation capacity and management of water flows to supply power as and when required by the local grid.

In the years ended December 31, 2009, 2010 and 2011, the effective tariff of electricity sold by us was RMB0.34 per kWh, RMB0.33 per kWh and RMB0.30 per kWh, respectively. The effective tariff for electricity sold in the year ended December 31, 2010 was lower than that in the year ended December 31, 2009 because in 2010, 36.5%, 22.8% and 39.6% of the electricity sold and 48.1%, 12.7% and 38.2% of the gross revenue were derived from our hydroelectric power projects in Zhejiang, Yunnan and Fujian provinces, respectively, where the average effective tariff was RMB0.43, RMB0.18 and RMB0.32 respectively, while in 2009, 37.8%, 15.6% and 43.6% of the electricity sold and 49.1%, 7.8% and 40.6% of the gross revenue resulted from our hydroelectric power projects located in Zhejiang, Yunnan and Fujian provinces, respectively, where the average effective tariff was RMB0.45, RMB0.17 and RMB0.32, respectively. The effective tariff for electricity sold in the year ended December 31, 2011 was slightly lower than that in the year ended December 31, 2010 because in 2011, 27.9%, 37.2% and 33.9% of the electricity sold and 43.0%, 23.0% and 33.0% of the gross revenue were derived from our hydroelectric power projects in Zhejiang, Yunnan and Fujian provinces, respectively, where the average effective tariff was RMB0.45, RMB0.19 and RMB0.31, respectively, while in 2010, 36.5%, 22.8% and 39.6% of the electricity sold and 48.1%, 12.7% and 38.2% of the gross revenue resulted from our hydroelectric power projects located in Zhejiang, Yunnan and Fujian provinces, respectively, where the average effective tariff was RMB0.43, RMB0.18 and RMB0.32, respectively.

The tariffs for our power dispatched are set through power purchase agreements with the grids to which our hydroelectric power projects are connected, and generally have terms of one to five years. We do not expect there to be any disruption in the service to the local power grid or any impact on our future revenues or liquidity regardless of the term of our agreements. If we should be unable to renegotiate a power purchase agreement with the local grid, the possibility of which we currently consider to be low due to a shortage of electricity generating capacity in the PRC, it is possible we would not be able to obtain alternative customers for the power generated by the hydroelectric power 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. Furthermore, even if we do renegotiate a power purchase agreement for the hydroelectric power project, it may be at a lower tariff or for lower volumes of power than what was in place previously. The realization of any of the outcomes described above could materially and adversely reduce our revenues and our results of operations and net cash used in operating activities could be materially and adversely affected.

Hydrological conditions

Our hydroelectric power generating prospects are dependent upon hydrological conditions prevailing in the broad geographic regions in which our existing and future hydroelectric generation facilities are located. Our business is seasonal, with the majority of our power generation occurring during times of high precipitation and snow melt, primarily in the second and third quarters of the calendar year. However, unusually low or high levels of precipitation or significant volatility or uneven distribution of water supply can significantly reduce or disrupt our power generation. Floods on our waterways may force us to shut down our run-of-the-river plants to avoid damage to the equipment, while droughts may cause water flows to be insufficient to operate the plant. In the future, we may construct additional projects along our waterways to help control the flow of water to our hydroelectric power projects. In the absence of further development on our waterways, other than carefully forecasting the amount of water we will receive, preparing for generation during periods of high water flow and storing water in anticipation of periods of low water flow, we are unable to mitigate the impact of hydrological conditions on our results of operations.

Hydrological conditions and resultant precipitation levels vary significantly from year to year, and as such, it is typical for hydroelectric power projects to experience up to a 20.0% or greater variance in their effective utilization rates each year. In the geographical areas our plants are located, overall precipitation in 2011 was significantly below historically average, while precipitation was significantly above historically average in 2010. We cannot predict with certainty hydrological

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conditions for 2012 or any other future periods. We expect our revenues will continue to be directly impacted by the hydrological conditions at our plants.

Production efficiency of our hydroelectric power projects

Our future results of operations will depend on our ability to maintain or increase the levels of generation at the projects we acquire, while at the same time maintaining or lowering the costs of operating those projects. We seek to achieve increased generation revenues from our hydroelectric power projects through controlling water flow to maximize power generation, predicting hydrological conditions to increase generation, operating clusters of power projects where we can balance the generation load amongst multiple projects, improving management of individual projects, and improving transmission of electricity from our hydroelectric power projects through better connections to power grids. All of these efforts will be realized through the oversight of our expert management team. If our management team is unable to implement these programs, or if we are unable to maintain generation levels at any given project or control our cost of revenues and operating expenses, we may not realize expected returns on the investment in the project, which would have a material adverse effect on our results of operations.

Ability to expand through strategic acquisitions, development of greenfield projects and expansion of our existing hydroelectric power projects

We currently have an acquisition pipeline of approximately 1,400.0MW installed capacity consisting of 246.0MW operating projects and 1,154.0MW of under construction or development rights which we are in the process of evaluating. Our future growth in revenues will depend on our ability to successfully complete these acquisitions and development projects and continue growing our pipeline, which in turn may depend on the PRC’s government’s monetary policy and the condition of capital markets as well as our ability to secure funding for completing any acquisition in our pipeline. In addition, we might need to sell additional operating assets to meet our liquidity needs, which may further reduce of the scale of our operation. See “Risk Factors—Risks Relating to our Company and the PRC Hydroelectric Power Industry—We have encountered and may continue to encounter difficulties in pursuing our acquisition strategy and have sold and may continue to sell operating assets, which would result in us being dependent upon our current or remaining portfolio of hydroelectric power projects and having limited revenue growth potential.”

Depreciation

The primary component of our cost of revenues is depreciation of property, plant and equipment. As a result, the actual cash portion of cost of revenues is low. Our depreciation expense for 2009 was $11.0 million out of a total cost of revenues of $16.5 million from continuing operations. Our depreciation expense for 2010 was $15.1 million out of a total cost of revenues of $24.0 million from continuing operations, while our depreciation expense for 2011 was $21.1 million out of a total cost of revenues of $32.5 million from continuing operations. Unlike other renewable energy generation systems, hydroelectric power projects may operate for decades if properly maintained. In accordance with U.S. GAAP, we depreciate the machinery at our plants over a 1-30 year period, the dams and reservoirs over a 30-49 year period and the buildings over an 8-50 year period, all on a straight line basis. For property, plant and equipment acquired through a business combination, depreciation is recorded on a straight-line basis over their respective remaining estimated useful lives.

All direct and indirect costs that are related to the construction of property, plant and equipment and incurred before the assets are ready for their intended use are capitalized as construction in progress. Construction in progress is transferred to specific property, plant and equipment accounts and depreciation commences when these assets are ready for their intended use. Interest costs are capitalized if they are incurred during the acquisition, construction or production of a qualifying asset and such costs could have been avoided if expenditures for the assets have not been made. Capitalization of interest costs commences when the activities to prepare the asset are in progress and expenditures and borrowing costs are being incurred. Interest costs are capitalized until the assets are ready for their intended use.

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Upon the acquisition of our hydroelectric power projects, we either record the new asset value based on the consideration paid in the case of an asset purchase or based on the fair values if it is accounted for using the acquisition method of accounting, often resulting in increased depreciation costs for the plant. We may at the time of acquisition also restate the useful lives of a plant’s key assets. We may also from time to time revaluate the useful life of an asset, thus extending our depreciation expense over a longer period of time. We expect that our depreciation costs will continue to account for a significant portion of our cost of revenues.

Critical accounting policies

We prepare our consolidated and other financial statements in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), which requires us to make judgments, estimates and assumptions that affect:

• the reported amounts of our assets and liabilities;

• the disclosure of our contingent assets and liabilities at the end of each reporting period; and

• the reported amounts of revenue and expenses during each reporting period.

We continually evaluate these estimates based on our own experience, knowledge and assessment of current business and other conditions and on our expectations regarding the future based on available information and reasonable assumptions, which together form our basis for making judgments about matters that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, our actual results could differ from those estimates. Some of our accounting policies require a higher degree of judgment than others in their application. When reading our consolidated and other financial statements, you should consider:

• our selection of critical accounting policies; the judgment and other uncertainties affecting the application of such policies; and

• the sensitivity of reported results to changes in conditions and assumptions.

We believe the following accounting policies involve the most significant judgments and estimates used in the preparation of our financial statements:

Fair value of financial instruments

The fair value measurement guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (also referred to as an exit price). When available, we measure the fair value of financial instruments based on quoted market prices in active markets, valuation techniques that use observable market-based factors or unobservable factors that are corroborated by market data. When observable market prices are not readily available, we generally estimate fair value using valuation techniques that rely on alternate market data or factors that are generally less readily observable from objective sources and are estimated based on pertinent information available at the time of the applicable reporting periods. In certain cases, fair values are not subject to precise quantification or verification and may fluctuate as economic and market factors vary and our evaluation of those factors changes. Although we use our best judgment in estimating the fair value of these financial instruments, there are inherent limitations in any estimation technique.

Our financial instruments include cash and cash equivalents, accounts receivable, certain other current assets, accounts payable, certain other liabilities, short-term loans, long-term loans, convertible notes, convertible redeemable preferred shares and warrants. The carrying values of these financial instruments, other than long-term loans, convertible redeemable preferred shares, and warrants approximate their fair values due to their short-term maturities. The convertible redeemable preferred shares were initially recorded at issue price net of issuance costs. We recognizes changes in the redemption value immediately as they occur and adjusts the carrying value of the convertible redeemable preferred shares to equal the redemption value at the end of each reporting period. All of the convertible redeemable preferred shares were

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automatically converted into ordinary shares on the date of IPO. In 2011, some terms of the warrants issued to certain warrant holders, which were previously classified as equity upon the IPO closing, were amended (“Amended Warrants”) and rendered the warrants the nature of derivative liabilities which should be presented as liabilities at fair value as determined on the amendment date. These amended warrants are adjusted to the fair-value at each reporting date. The warrants issued in connection with the convertible redeemable preferred shares were recorded as a liability at fair value as determined on the day of issuance and subsequently adjusted to the fair value at each reporting date. Upon the closing of our IPO on January 25, 2010, these warrants were reclassified from a liability to equity at the fair value immediately prior to such reclassification. In 2011, some terms of the warrants issued to certain warrant holders, which were previously classified as equity upon the IPO closing, were amended (“Amended Warrants”) and rendered the warrants the nature of derivative liabilities which should be presented as liabilities at fair value as determined on the amendment date. These amended warrants are adjusted to the fair-value at each reporting date. With the assistance of independent third party valuation firms, we determined the fair values of the convertible notes and related derivative financial liability, convertible redeemable preferred shares and warrants. The carrying values of long-term loans approximate their fair values due to the fact that the interest rates on these loans are reset each year based on prevailing market interest rates.

Revenue recognition

Our revenue is derived from the sale of electricity. Revenues are recognized when the following four criteria are met as prescribed by Accounting Standards Codification (“ASC”) sub-topic 605-10, Revenue Recognition: Overall: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the seller’s price to the buyer is fixed or determinable, and (iv) collectability is reasonably assured. We consider the terms of each arrangement to determine the appropriate accounting treatment. Revenue is generally earned and recognized upon transmission of electricity to a power grid. For transactions in which electricity has been transmitted to the power grid without a fixed or determinable unit price per kWh while the tariff is pending approval of the regional or provincial pricing bureau, cash received in exchange for the transmission of electricity to a power grid has been recorded as customer deposits until such time the price becomes fixed and determinable. When the price becomes fixed and determinable, all or a portion of the customer deposits will be recognized as revenue. We do not defer the related cost of revenues, which is charged to expense as incurred. Customer deposits of $56,000 included in “Accrued expenses and other current liabilities” as of December 31, 2008 were recognized as revenues in the year ended December 31, 2009 as the unit price per kWh became fixed or determinable based on a confirmed minimum tariff obtained from the regional pricing bureau in June 2009. We have not offered any discounts or rebates to our customers nor do we provide for refunds in our sales contracts with customers.

Our subsidiaries are subject to withholding value-added tax (“VAT”) on the revenues earned in the PRC. The applicable rate of VAT is 6.0% for small hydroelectric power projects with a total installed capacity of 50 MW or less and 17.0% for large hydroelectric power projects with a total installed capacity of over 50 MW. For the year ended December 31, 2009, the lower VAT rate of 6.0% was applied to the hydroelectric power projects of Binglangjiang, Liyuan, Yingchuan, Wuliting, Yuheng and Yuanping and the VAT rate of 17.0% was applied to the hydroelectric power projects of Banzhu, Wangkeng, Jiulongshan and Zhougongyuan. For the year ended December 31, 2010, the lower VAT rate of 6.0% was applied to the hydroelectric power projects of Binglangjiang, Liyuan, Yingchuan, Wuliting, Yuheng, Yuanping, Jiulongshan, Zhougongyuan, Shapulong, Ruiyang, Husahe, Hengda, Xineng, Xiaopengzu, Jinling, Jinlong, Jintang and Jinwei and the VAT rate of 17.0% was applied to the hydroelectric power projects of Banzhu and Wangkeng. For the year ended December 31, 2011, the lower VAT rate of 6.0% was applied to the hydroelectric power projects of Binglangjiang, Liyuan, Yingchuan, Wuliting, Yuheng, Yuanping, Jiulongshan, Zhougongyuan, Shapulong, Ruiyang, Husahe, Hengda, Xineng, Xiaopengzu, Jinling, Jinlong, Jintang, Jinwei and Dazhaihe and the VAT rate of 17.0% was applied to the hydroelectric power projects of Banzhu and Wangkeng. VAT on revenues earned from the sale of electricity by us to our customers for the years ended December 31, 2009, 2010 and 2011 were $3.7 million, $5.7 million and $4.6 million, respectively. We have recognized revenues net of VAT in the consolidated statements of operations.

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Goodwill and intangible assets

Goodwill represents the excess of the purchase price over the amounts assigned to the fair value of the assets acquired and the liabilities assumed of acquired businesses. ASC sub-topic 350-10, Intangibles—Goodwill and other: Overall, requires that goodwill be tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired. We assign and assess goodwill for impairment at the reporting unit level at each reporting date.

The performance of the impairment test involves a two-step process. The first step of the impairment test involves comparing the fair value of the reporting unit with its carrying amount, including goodwill. Fair value is primarily determined through the income approach by computing the future discounted cash flows expected to be generated by the reporting unit and is dependent on a number of significant entity specific assumptions, including plant utilization rate, electricity sales volumes and tariffs, costs of production, capital expenditures, working capital changes and the discount rate. The discount rate is commensurate with the risk inherent in the projected cash flows and reflects the rate of return required by an investor in the current economic conditions. For reporting units to be disposed of subsequent to the reporting date, the market approach is used where estimates of prices reasonably expected to be realized from the sale of the reporting units are used to determine the fair value of each reporting unit. If the carrying value exceeds the fair value, goodwill may be impaired. If this occurs, we perform the second step of the goodwill impairment test to determine the amount of impairment loss. The fair value of the reporting unit is allocated to its assets and liabilities in a manner similar to a purchase price allocation in order to determine the implied fair value of the reporting unit goodwill. This implied fair value is then compared with the carrying amount of the reporting unit goodwill, and if it is less, we would then recognize an impairment loss. All of goodwill on the Company’s balance sheet related to the acquisition of our power projects. In 2011, we continue to experience significant decline in our stock price. As a result, our company stock price closed at $1.14 per ADS on December 30, 2011, the last trading date of 2011, representing a 84.2% decline from $7.21 per ADS on January 3, 2011, the first trading date of 2011. The circumstances prompted management to evaluate and test the fair value of the Company’s assets against its carrying amount in accordance with US GAAP. We concluded that the carrying amount of its acquired projects mentioned above was higher than their fair value and consequently recorded a one-time goodwill impairment charge of $4.2 million, $1.1 million and $6.1 million, respectively, for Xiaopengzu, Xineng, Jinling and its subsidies during the last quarter of 2011, the goodwill impairment attributable to the Company’s shareholders is $9.8M.

Intangible assets are carried at cost less accumulated amortization. Intangible assets acquired in a business combination are recognized initially at fair value at the date of acquisition. Intangible assets with a finite useful life are amortized using the straight-line method over the estimated economic life of the intangible assets. In connection with the acquisition of Binglangjiang in 2007, we acquired a legal right to expand and operate the Binglangjiang II plant. The development rights allow us to expand the power generation capacity of Binglangjiang by utilizing the existing water dam of Binglangjiang, which have an estimated useful life of 30 years. We completed construction of the Binglangjiang II hydroelectric power project in August 2009. In connection with the acquisition of Yuanping in October 2008, we acquired a contractual right to use water from the dam and reservoir of the Jinzaoqiao station, which has an estimated useful life of 40 years. As we entered into an equity purchase and sales agreement to sell Yuanping in December 2011, the contractual right to use water from the dam and reservoir of the Jinzaoqiao station was reclassified as part of the assets held for sale. On August 12, 2009, Yuheng acquired a contractual right to use water from the dam and reservoir of Wangquan Power Generation Co., Ltd., the term of which is 30 years. In connection with the acquisition of Jinling, we acquired a right to use the dam of the Dongguan hydropower project which has a useful life of 40 years. We recognized the fair value of $1,759,000 for the dam use right as a separate intangible asset apart from goodwill. The estimated useful life of the dam use right of Dongguan is 40 years.

We review and adjust the carrying value of the intangible assets if the facts and circumstances suggest the intangible assets may be impaired. We assesses and concluded that there was no impairment for intangible assets in any of the periods presented.

Impairment of long-lived assets

We evaluate our long-lived assets, including property, plant and equipment, land use right and intangible assets with finite lives, for impairment whenever events or changes in circumstances, such as a significant adverse change to market conditions that will impact the future use of the assets,

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indicate that the carrying amount of an asset may not be recoverable in accordance with ASC subtopic 360-10, Property, Plant and Equipment: Overall. When these events occur, we assess the recoverability of long-lived assets by comparing the carrying amount of the assets to the expected future undiscounted cash flows resulting from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flow is less than the carrying amount of the assets, we recognize an impairment loss based on the excess of the carrying amount of the assets over their fair value. Fair value is generally determined by discounting the cash flows expected to be generated by the assets, when the market prices are not readily available. As of December 31, 2011, we recognized impairment loss of Wuyue’s construction in progress for $11.6M. The impairment loss attributable to the Company’s shareholders is $5.0M.

Long-lived assets held for sale

We evaluate long-lived asset to be disposed of other than by sale in accordance with the provisions of ASC sub-topic 360-10, Impairment and Disposal of Long-Lived Assets, where such long-lived asset continues to be classified as held and used until it is disposed of. When a long-lived asset ceases to be used, the carrying amount of the asset is written down to its salvage value, if any. When all of the following conditions are met, the asset should be classified as held for sale:

• A plan to sell the asset has been committed to by management;

• The asset can be sold in its current condition;

• An active plan has been initiated to find a buyer;

• It is probable that the sale will be completed within one year and will qualify as a completed sale;

• The sales price is reasonable relative to the asset’s current fair value and the entity is actively marketing the asset; and

• It is unlikely that the plan to sell the asset will be withdrawn or changed significantly;

The sale of Yuanping in December 2011 which was completed in March 2012 met all of the preceding requirements. Accordingly, the assets were classified as held for sale.

Discontinued operations

We evaluate the criteria in accordance with ASC sub-topic 205-20, Presentation of Financial Statements: Discontinued Operations, to determine whether long-lived assets held for sale should be reported as a discontinued operation. When the following two conditions are met, the component’s results of operations are reported as a discontinued operation:

• The operations and cash flows of the component have been eliminated from the ongoing operations of the entity as a result of the disposal transaction;

• The entity will not have any significant continuing involvement in the operations of the component after the disposal transaction.

In the accounting period that a disposition occurs is expected, the results of operations for the component must be included in a separate section of the income statement after income from continuing operations and before the extraordinary item section. The results of operations must be presented not only for the current year, but for all prior periods, presented with current year statements. Assets and liabilities from discontinued operations for which the disposition has not occurred should not be offset, but should be reported separately as assets and liabilities on the balance sheet. In addition, major classes of assets and liabilities subject to disposition should be reported separately or disclosed in related footnotes.

The sale of Yuanping in December 2011 which was completed in March 2012 met all of the preceding requirements. Accordingly, the results of operations are reported in a separate section of the income statement as discontinued operations for both current year and for all prior periods.

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Income taxes

We follow the liability method of accounting for income taxes in accordance with ASC subtopic 740-10, or ASC 740-10, Income Taxes: Overall. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities, net operating loss carry forwards and credits, using enacted tax rates that will be in effect for the period in which the differences are expected to reverse. We record a valuation allowance against the amount of deferred tax assets if based on the weight of available evidence, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rate is recognized in statements of operations in the period that includes the enactment date.

On January 1, 2007, we adopted Financial Accounting Standards Board, or FASB, Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB statement No. 109, or FIN 48, which has been codified into ASC 740-10. There was no cumulative effect of the adoption of FIN 48 to beginning retained earnings. Interests and penalties arising from underpayment of income taxes are computed in accordance with the related PRC tax law. The amount of interest expenses is computed by applying the applicable statutory rate of interest to the difference between the tax position recognized and the amount previously taken or expected to be taken in a tax return. Interest recognized in accordance with FIN 48 is classified in the financial statements as interest expenses, while penalties recognized in accordance with FIN 48 are classified in the financial statements as other expenses.

In accordance with the provision of FIN 48, we recognize in our financial statements the impact of a tax position if a tax return position or future tax position is “more likely than not” to prevail, defined as a likelihood of more than fifty percent of being sustained upon audit, based on the technical merits of the tax position. Tax positions that meet the “more likely than not” threshold are measured, using a probability weighted approach, at the largest amount of tax benefit that has a greater than fifty percent likelihood of being realized upon settlement.

Our estimated liability for unrecognized tax benefits is periodically assessed for adequacy and may be affected by changing interpretation of laws, rulings by tax authorities, certain changes and/or developments with respect to audits, and expiration of the statute of limitations. The outcome for a particular audit cannot be determined with certainty prior to the conclusion of the audit and, in some cases, appeal or litigation process. The actual benefits ultimately realized may differ from our estimates. As each audit is concluded, adjustments, if any, are appropriately recorded in our financial statements. Additionally, in future periods, change in facts, circumstances, and new information may require us to adjust the recognition and measurement estimates with regard to individual tax positions. Changes in recognition and measurement estimates are recognized in the period in which the change occurs.

Prior to the adoption of FIN 48, we applied ASC sub-topic 450-20, or ASC 450-20, Contingencies: Loss Contingencies to assess and provide for potential income tax exposures. In accordance with ASC 450-20, we maintained reserves for tax contingencies based on reasonable estimates of the tax liability, interest and penalties that may result from such audits.

Preferred shares warrant

On January 28, 2008 (“Warrant Issue Date”), we issued warrants to Morgan Joseph & Co. Inc. (“Morgan Joseph”), which allow Morgan Joseph to purchase (i) up to 15,000 Series A Preferred Shares at $1,100 per share prior to the closing of an IPO, or (ii) up to such number of ordinary shares automatically converted into from 15,000 Series A Preferred Shares upon the closing of an IPO at 110% of the then-effective conversion price per Series A Preferred Shares (“Morgan Joseph Preferred Shares Warrant”). Following the IPO, the warrant currently allows Morgan Joseph to purchase 4,606,880 ordinary shares at a price of $3.26 per share. The estimated fair value of Morgan Joseph Preferred Shares Warrant at the issue date was based on a valuation performed by us with the assistance of American Appraisal China Limited, or American Appraisal, an unrelated and independent valuation firm.

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We estimated the fair value of Morgan Joseph Preferred Shares Warrant at the Warrant Issue Date as call options using Black-Scholes option-pricing model, with the assistance of American Appraisal. Under this model, we made a number of assumptions, including:

• the expected future volatility of our ordinary share prices;

• the risk-free interest rate;

• the expected dividend yield; and

• the estimated fair value of our ordinary and preferred shares at the Warrant Issue Date.

Since we were a privately held company at the Warrant Issue Date, we estimated the expected future volatility of our ordinary shares price based on the historical price volatility of the publicly traded shares of five comparable companies in the hydroelectric power related businesses over the periods equal to the contractual term of Morgan Joseph Preferred Shares Warrant. The risk-free interest rate was based on the market yield of China sovereign bonds denominated in U.S. dollars with maturity terms equal to the contractual term of the Morgan Joseph Preferred Shares Warrant. The dividend yield was estimated based on the expected dividend policy over the expected term of the warrants.

The fair value of our Morgan Joseph Preferred Shares Warrant granted on January 28, 2008 was determined based on the fair value of our ordinary shares and preferred shares based on valuation performed by us retrospectively, with the assistance of American Appraisal, as of that day. The following discussion sets forth the significant factors considered and key assumptions and methodologies used in such valuation.

Determining the fair equity value requires making complex and subjective judgments, including those regarding our projected financial and operating results, our unique business risks, the liquidity of our shares and our operating history and prospects at the time of Warrant Issue Date. The significant factors considered include the following:

• our financial and operating results;

• the assumptions and basis of our financial projections;

• the nature of our business since our inception;

• the stage of development of our operations;

• our business plan;

• our business risks;

• the nature and prospects of the hydroelectric power industries in China;

• the global economic outlook in general and the specific economic and competitive elements affecting our business, industry and market; and

• the market-derived investment returns of entities engaged in the hydroelectric power businesses.

We used the discounted cash flow method, or DCF method, under the income approach to assess the fair value of our equity as of December 31, 2007, based on our projected cash flow using management’s best estimate as of the valuation date. As we believed that there was no material change in our operations in the short period between December 31, 2007 and January 28, 2008 that would materially impact the fair value of our total equity value, our equity value as of the Warrant Issue Date was derived based on (i) the equity value derived as of December 31, 2007; and (ii) the issuance proceeds from Series A preferred shares issued on January 23, 2008. Since our Company only had three hydroelectric power projects in operation as at the Warrant Issue Date and our scale of business was much smaller than those listed companies in similar business and similar locations, we concluded that a market comparison approach would not have been meaningful in determining the fair value of our equity.

The DCF method involved applying appropriate discount rates to future free cash flows that are based on five-year financial projections developed by us. The major assumptions used in deriving the financial projections were consistent with our business plan at the time of the valuation. In deriving

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the discount rates used in the DCF method, we considered the weighted average cost of capital, or WACC, applicable to us as well. The WACC we used was 13% for the valuation with respect to our equity value as of December 31, 2007.

In addition, we have taken into account the discount for lack of marketability of our shares in the valuation to reflect the fact that we were a private company. We quantified the discount for lack of marketability, or DLOM, using the option-pricing method. This method treats the right to sell a company’s shares freely before a liquidity event as a put option. The more distant the valuation date is from a liquidation event, the higher the put option value and thus the higher the implied DLOM. We obtained and used a DLOM of 13% for valuation with respect to our equity value as of December 31, 2007.

To the extent our capital structure comprised ordinary shares and preferred shares as of the Warrant Issue Date, we used the option-pricing method to allocate total equity value derived to different classes of shares, taking into account the guidance prescribed by the AICPA Audit and Accounting Practice Aid “Valuation of Privately-Held-Company Equity Securities Issued as Compensation,” or the Practice Aid. Under the option-pricing method, we treated ordinary shares and preferred shares as call options on our enterprise value, with exercise prices based on the liquidation preference of our preferred shares. We estimated the value of these call options using the Black-Scholes option-pricing model.

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying warrants and the fair value of our common shares as of each balance sheet date.

Upon the closing of the IPO on January 25, 2010, all of the outstanding Series A Preferred Shares were automatically converted into ordinary shares (Note 16). As a result, pursuant to the preferred shares subscription agreement, the Morgan Joseph Preferred Shares Warrant automatically became a warrant that allows Morgan Joseph to purchase up to 4,606,880 ordinary shares at $3.26 per share and was reclassified from liability to equity and will be subsequently accounted for as such.

Share-Based Compensation

We account for share awards issued to employees in accordance with ASC sub-topic 718-10 (“ASC 718-10”), Compensation-Stock Compensation: Overall. In accordance with the fair value recognition provision of ASC 718-10, share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense, net of estimated forfeitures, over the requisite service period, which is generally the vesting period. We have elected to recognize share-based compensation expense for share awards granted to employees using the straight-line method.

We account for share awards issued to non-employees in accordance with the provisions of ASC 718-10 and ASC sub-topic 505-50-9 (“ASC505-50”), Equity-Based Payment to Non-employees. Our share awards issued to non-employees are subject to graded vesting provisions. We recognize share-based compensation expense for share awards granted to non-employees using the accelerated recognition method over the requisite service period of the award. In accordance with ASC 718-10 and ASC 505-50, we use the binomial option pricing valuations model, or binomial model, to measure the value of options granted to non-employees at each vesting date to determine the appropriate charge to share-based compensation.

In accordance with ASC 718-10, the grant date for the options to employees and non-employees approved by the board of directors on August 18, 2008 and January 20, 2009, was March 4, 2009 (“Option Grant Date”) and the grant date for the options to employees and one non- employee approved by the board of directors on December 3, 2009 was January 25, 2010 (“Option Grant Date”). On December 22, 2011, our Board of Director approved the fair value to fair value exchange of the options granted in 2008 and 2009 except those options issued to certain former and current board members and one former consultant. Employees were offered the opportunity to participate in the exchange program on a voluntary basis. All of the options exchanged were vested immediately on December 28, 2011, the date on which the exchange program was implemented and

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the exchange agreements were signed. We estimated the fair value of our share options at the Option Grant Date using the binomial model, with the assistance of American Appraisal. It should be noted that the binomial model requires the input of highly subjective assumptions, including the expected share price volatility. We use projected volatility rates, which are based upon historical price volatility rates experienced by comparable public companies. Because changes in the subjective input assumptions can materially affect the fair value estimate, in our management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of our share options. Changes in our estimates and assumptions regarding the expected volatility and fair value of our ordinary shares, for example, could significantly impact the estimated fair value of our share options and, as a result, our net income and net income attributable to holders of our ordinary shares.

Under the binomial model, we made a number of assumptions regarding the fair value of the options, including:

• the expected future volatility of our ordinary share price;

• the risk-free interest rate;

• the expected dividend yield;

• the expected employee share option exercise behavior;

• the expected forfeiture rate; and

• the estimated fair value of our ordinary shares at the grant date.

Since we were a privately held company at each Option Grant Date, we estimated the expected future volatility of our ordinary share price based on the historical price volatility of the publicly traded shares of five comparable companies in the hydroelectric power related businesses over the periods equal to the contractual term of our share options. The risk-free interest rate was based on the U.S. Treasury zero-coupon yield in effect with maturity terms equal to the contractual term of the options. The dividend yield was estimated to be zero. We use historical turnover data to estimate the expected forfeiture rate.

The fair value of our share options on the grant date of March 4, 2009 was determined based on the fair value of our ordinary shares based on valuation performed by us contemporaneously, with the assistance of American Appraisal, as of that day. The following discussion sets forth the significant factors considered and key assumptions and methodologies used in such valuation.

Determining the fair equity value requires making complex and subjective judgments, including those regarding our projected financial and operating results, our unique business risks, the liquidity of our shares and our operating history and prospects at the time of the Option Grant Date. The significant factors considered include the following:

• our financial and operating results;

• the assumptions and basis of our financial projections;

• the nature of our business since our inception;

• the stage of development of our operations;

• our business plan;

• our business risks;

• the nature and prospects of the hydroelectric power industries in China;

• the global economic outlook in general and the specific economic and competitive elements affecting our business, industry and market; and the market-derived investment returns of entities engaged in the hydroelectric power businesses.

We used a combination of (i) the guideline company method under the market approach and (ii) the DCF method under the income approach to assess the fair value of our equity value as of March 4, 2009, based on our projected cash flow using management’s best estimate as of the valuation date. We assigned an equal weighting of 50.0% to each of the results obtained using the guideline company method and the results obtained using the DCF method.

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Under the guideline company method, different value measures and market multiples of comparable companies were calculated and analyzed to induce a series of multiples that were considered representative of the industry average. The market multiples were then adjusted based on our growth rate, business risks and profitability.

Thereafter, the adjusted multiples were applied to our performance indicators to determine our value on a minority and freely traded basis. We specifically applied the financial ratios of enterprise value to revenues multiple, or EV/Revenues multiple, and enterprise value to earnings before interest, tax, depreciation and amortization multiple, or EV/EBITDA multiple, to our pro-forma financial results for fiscal year 2008 in arriving at an indicative value of us under the guideline company method. For the valuation with respect to our equity value as of the Option Grant Date, we applied an EV/Revenues multiple of 11.4 and an EV/EBITDA multiple of 28.3.

We have selected five companies in the hydroelectric power related businesses listed in Shanghai Stock Exchange in China for reference as comparable companies: Chongqing Three Gorges Water Conservancy and Electric Power Co. Ltd., Guangxi Guiguan Electric Power Co. Ltd., Qianjiang Water Resources Development Co. Ltd., Guangxi Guidong Electric Power Co. Ltd., Leshan Electric Power Co. Ltd. Since the nature of our operation is highly subject to geographical factors such as water supply, tariff and demand for power, etc., our business risks are most similar to the comparable companies having similar business and similar locations in China.

The DCF method involved applying appropriate discount rates to future free cash flows that are based on five-year financial projections developed by us. The major assumptions used in deriving the financial projections were consistent with our business plan at the time of the valuation. In deriving the discount rates used in the DCF method, we considered the weighted average cost of capital, or WACC, applicable to us as well. The WACC we used was 10% for the valuation with respect to our equity value as of the Option Grant Date.

In addition, we have taken into account the discount for lack of marketability of our shares in the valuation to reflect the fact that we are a private company. We adopted a DLOM of 10% for valuation with respect to our equity value as of the Option Grant Date.

To the extent our capital structure comprised ordinary shares and preferred shares as of the Option Grant Date, we used the option-pricing method to allocate total equity value derived to different classes of shares, taking into account the guidance prescribed by the AICPA Audit and Accounting Practice Aid “Valuation of Privately-Held-Company Equity Securities Issued as Compensation,” or the Practice Aid. Under the option-pricing method, we treated ordinary shares and preferred shares as call options on our enterprise value, with exercise prices based on the liquidation preference of our preferred shares. We estimated the value of these call options using the Black-Scholes option-pricing model.

The estimated fair value of our ordinary shares at the Option Grant Date of March 4, 2009 was $2.08. Based on the initial public offering price of $4.93 per ordinary share, we have determined that the intrinsic value of the outstanding options as of December 31, 2009 was $nil. Although it is reasonable to expect that the completion of the initial public offering should increase the value of our ordinary shares because of their increased liquidity and marketability, we believe that the added value cannot be measured with precision or certainty.

The decrease in our ordinary share value from $2.56 per share as of January 28, 2008 to $2.08 per share as of March 4, 2009 was primarily due to the dilutive effect of the Series B convertible redeemable preferred shares we issued in July 2008 on our ordinary share value; and a generally unfavorable market sentiment towards China-based publicly traded companies, reflected in an overall decrease in the market value of those companies, which was partially offset by our subsequent acquisitions of Yingchuan, Wuliting, Zhougongyuan, Banzhu, Wangkeng, Yuanping and Yuheng between the period from January 28, 2008 to March 4, 2009, which were expected to expand our business operations and improve our cash flow and financial prospects.

Under ASC topic 718 Share-Based Compensation—Additional Consideration, modifications of equity instruments should be accounted for as follows:

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• Any incremental compensation cost is determined as the excess of the fair value of the new award compared to the fair value of the original award measured just prior to its modification, total compensation cost is equal to the grant date fair value of the award for the service period over which it is expected to be satisfied and the incremental cost from the modification;

• and when the entity uses the intrinsic method, the change in compensation cost is measured by comparing the intrinsic value of the original award measured just prior to the modification.

Under ASC topic 718, the incremental cost for the stock options is to be recorded and expensed over the vested period of the exchanged options. The incremental cost is the difference between the fair value of the options immediately prior to the exchange and the fair value of the exchange options immediately after the exchange.

On December 28, 2011, the Board approved an option exchange program. Pursuant to the option exchange program, 10,109,000 and 275,000 share options originally granted to employees and a non-employee consultant, respectively, were cancelled. Simultaneously, 407,706 and 9,250 share options at an exercise price of US$0.46 were granted to these employees and the non-employee consultant, respectively, in exchange for the cancelled options. The option exchange program was set to give the same total fair value to the new and the original options, both determined based on Black-Scholes valuation model.

Taxation

We are incorporated in the Cayman Islands. Under the current law of the Cayman Islands, we are not subject to income or capital gains tax. In addition, dividend payments are not subject to withholding tax in the Cayman Islands. Stamp duty may be payable on certain instruments if they are executed, retained or adjudicated in the Cayman Islands.

Enterprise Income Tax

Prior to January 1, 2008, under applicable PRC tax laws, companies established in China were generally subject to a state and local enterprise income tax, or EIT, at statutory rates of 30.0% and 3.0%, respectively.

In March 2007, the National People’s Congress of China enacted the EIT Law, and in November 2007, the State Council promulgated the implementing rules of the EIT Law, both of which became effective on January 1, 2008. The EIT Law curtails tax incentives granted to foreign-owned enterprises under the previous tax law. The EIT Law, however, (i) reduces the top rate of EIT from 33.0% to 25.0%, (ii) permits companies to continue to enjoy their existing tax incentives, subject to certain transitional phase-out rules, and (iii) introduces new tax incentives, subject to various qualification criteria. The Notice of the State Council on Carrying Out the Transitional Preferential Policies Concerning Enterprise Income Tax dated December 26, 2007 permits certain “businesses operated in Western China” to enjoy a reduced EIT rate. Under the phase-out rules, enterprises established before the promulgation date of the EIT Law and which were granted preferential EIT treatment under the then effective tax laws or regulations may continue to enjoy their preferential tax treatments until their expiration and will gradually transition to the uniform 25.0% EIT rate over a five-year transition period. Accordingly, our businesses have been subject to a 25.0% EIT rate from January 1, 2008, with the exception of Binglangjiang, Liyuan, Husahe, Hengda, Xineng and Xiaopengzu. Binglangjiang was entitled to a lower corporate income tax rate of 15% as its corporate income tax rate from 2007 to 2011. Liyuan was entitled to tax exemption in 2007 and 2008 and a tax rate of 7.5% from 2009 to 2011. Husahe was entitled to a lower corporate income tax rate of 15% as its corporate income tax rate from 2007 to 2011. Hengda was entitled to tax exemption in 2007 and 2008 and a tax rate of 7.5% from 2009 to 2011. Xineng, Xiaopengzu and Dazhaihe were entitled to tax exemption in 2009 and 2010 and a tax rate of 7.5% in 2011. Banzhu was entitled to tax exemption in 2008 and 2009 and a corporate income tax rate of 12.5% from 2010 to 2012 based on tax preferential treatment granted by the PRC government on May 15, 2009.

As with any new law, the implementation regulations for the EIT Law may not be interpreted by the State Administration of Taxation as expected and the phase-out rules expected to be applied

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as described above may not be applied in the same fashion in practice or may be changed, potentially with retroactive effect.

Dividend Withholding Tax

As a Cayman Islands holding company, substantially all of our income may be derived from dividends we receive from our PRC operating subsidiaries. The EIT Law and its implementing rules provide that dividends paid by a PRC entity to a non-resident enterprise for EIT purposes are subject to PRC withholding tax at a rate of 10.0%. In addition, our tax treatment will depend on our status as a non-resident enterprise.

For a detailed discussion of PRC tax issues related to resident enterprise status, see “Risk Factors—Risks Relating to Doing Business in China. We may be deemed a PRC enterprise under the EIT Law and be subject to China taxation on our worldwide income.”

Value Added Tax

In accordance with the relevant tax laws in China, all entities engaged in the sale of goods within the territory of China are required to pay VAT. Pursuant to applicable regulations prior to January 1, 2009, hydroelectric power projects under 50.0 MW of installed capacity are subject to a VAT of 6.0%, while larger hydroelectric power projects are subject to a VAT of 17.0%; however, in one province the higher VAT rate of 17.0% is applied on an exception basis to two of our hydroelectric power projects under 50.0 MW in size. Our tariffs are set gross of VAT and our revenues are reported net of VAT.

Urban Maintenance & Construction Tax and Education Surcharges

In accordance with relevant PRC regulations, an urban maintenance and construction tax and education surcharges will be imposed on foreign-invested enterprises, foreign enterprises, and foreign individuals in respect of value-added tax, consumption tax and business tax payable on and after December 1, 2010. The urban maintenance and construction tax and education surcharges are calculated as a percentage of the value-added tax, consumption tax and business tax due. The education surcharges are levied at a unified rate at 3.0%, while the rates for the urban maintenance and construction tax differ depending on the location of the taxpayer: (i) 7.0% for taxpayers located in a city; (ii) 5.0% for taxpayers located in a county and town area; and (iii) 1.0% for taxpayers located in other regions.

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Results of Operations of Our Company

Our consolidated results of operations are summarized below.

	For the Year Ended December 31,
	2009			2010			2011
Continuing operations:
Revenues		34,327			63,280			57,544
Cost of revenues		(16,458	)		(23,970	)		(32,545	)
Gross profit		17,869			39,310			24,999
Operating expenses
General and administrative expenses		(9,003	)		(19,307	)		(29,028	)
Operating (loss) income		8,866			20,003			(4,029	)
Interest income		510			1,190			102
Interest expense		(13,359	)		(15,167	)		(26,550	)
Change in fair value of warrant liabilities		(13,793	)		365			951
Exchange loss		(23	)		(855	)		(851	)
Share of losses in an equity investee		(70	)		—			—
Impairment loss on goodwill		—			—			(11,388	)
Impairment loss on long-lived assets		—			—			(11,590	)
Other (loss) income, net		(225	)		122			(348	)
(Loss) income before income tax expenses		(18,094	)		5,658			(53,703	)
Income tax expense		(1,433	)		(3,557	)		(1,549	)
Net (loss) income from continuing operations		(19,527	)		2,101			(55,252	)
Net income (loss) net of income tax (expense) benefits from discontinued operations		99			1,884			(38	)
Less:
Net loss (income) attributable to noncontrolling interest		32			(243	)		9,901
Net (loss) income attributable to China Hydroelectric Corporation shareholders		(19,396	)		3,742			(45,389	)
-Continuing operations		(19,495	)		1,858			(45,351	)
-Discontinued operations		99			1,884			(38	)

Revenues

We derive revenues solely from the sale of electricity generated by our hydroelectric power projects. The generation of electricity by our hydroelectric power projects for any given period will depend on the planned annual generation as agreed with the power grid to whom the electricity is sold and as approved by the relevant pricing bureau, the actual demand for our electricity from the power grid and the actual hydrological conditions experienced during the period. The on-grid tariff for electricity generated by our hydroelectric power projects is set annually by the relevant pricing bureau in consultation with the relevant power grid. The on-grid tariff is determined in light of the initial capital investment in the plant, the historical operating cost, the water resource fees, the debt financing expense for the plant, an allowance for a reasonable return and, in practice, by the supply and demand for electricity in the local market. Furthermore, we have benefited from the central government’s policy of promoting the development of additional hydroelectric power generating capacity by raising hydro tariffs to more closely approximate the higher tariffs paid for thermal generated electric power. The tariff we receive is subject to VAT and, in some cases, business surcharges, and our revenues are reported net of VAT and business surcharges. The on-grid tariff for hydropower for our plants in Zhejiang and Fujian provinces has increased over time to approach on-grid tariffs for thermal generated electric power. In Yunnan province, the tariff received by our

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plants is significantly lower than that for thermal power, and we expect that in the long-term we will experience an increase in the on-grid tariff for hydropower, as power grids seek to improve their operating margins through increased purchase of hydropower and the approved tariff for thermal power increases.

The power grids make monthly payments for our power delivered 30 to 60 days after month end. In 2009 we sold our electricity to five power grids as a result of our acquisitions in Zhejiang and Fujian provinces. In 2010 and 2011 we sold our electricity to seven and ten power grids as a result of our acquisitions in Yunnan and Fujian provinces, respectively. Any deterioration in our relationship with any of these grids, or in their financial condition could result in a material credit risk to our company and have a materially adverse effect on our financial condition and results of operations. The table below sets forth the percentage of our revenues derived from sales to each of these power grids for the year ended December 31, 2009, 2010 and 2011(including Yuanping).

	Year Ended December 31, 2009		Year Ended December 31, 2010		Year Ended December 31, 2011
	% of Revenues
Yunnan Nujiang Electric Power Co., Ltd.		—		1		7
Yunnan Dehong Electric Power Co., Ltd.		8		9		11
Yunnan Power Grid Company, Ltd.		—		3		4
Sichuan Cangxi Electric Power Co., Ltd.		3		1		1
Lishui Electric Power Bureau		50		49		43
Fujian Electric Power Co., Ltd.		28		24		16
Pingnan Power Supply Company		11		13		8
Yunnan Honghe electric Power Co., Ltd.		—		—		1
Shaowu Electric Power Bureau		—		—		7
Nanping electric Power Bureau		—		—		2
Total		100		100		100

Before we acquired the remaining 50.0% of the equity interest in Shapulong in August 2009, our investment in Shapulong was accounted for using the equity method of accounting under Accounting Standard Codification subtopic ASC 323-10, Investments—Equity Method and Joint Ventures: Overall, and included as an investment in equity investees on our balance sheet. Under the equity method, our proportionate share of Shapulong’s net income or loss is included as share of income or losses, as applicable, in equity investees in our statement of operations. Accordingly, Shapulong’s results of operations are not reflected in our consolidated results of operations other than as a share of income or losses, as applicable, in equity investees in our consolidated statement of operations before August 2009. Shapulong became our wholly-owned subsidiary in August and its results of operations after the acquisition are reflected in our consolidated results of operations.

Although Yuanping commenced operations in March 2007 and has transmitted electricity to the power grid controlled by the Fujian Electric Power Bureau, that transmission was made without a fixed or pre-determined tariff per kWh until late June 2009. Therefore, cash received in exchange for the transmission of electricity to the power grid before late June 2009 was recorded as customer deposits. Accordingly, no revenues were recorded by Yuanping in the year ended December 31, 2008. However, related cost of revenues was not deferred, and was charged to expense as incurred. All of the customer deposits received from the date of our acquisition of Yuanping to late June 2009 were recognized as revenue when the regional pricing bureau confirmed a minimum tariff in late June 2009. We only recognize revenue for customer deposits recorded subsequent to the acquisition of Yuanping after the tariff became fixed or determinable. In August 2009, the Ningde Pricing Bureau, the regional pricing bureau in the Fujian province, approved a unit price per kWh of RMB0.29, inclusive of VAT, for electricity transmitted by Yuanping to the power grid controlled and owned by the provincial grid company prior to July 8, 2009. The unit price per kWh of RMB0.29 will continue to be in effect until the regional pricing bureau approves a new unit price per kWh.

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In discussing our revenues, we have included information relating to (i) the effective tariff for electricity sold in the years ended December 31, 2009, 2010 and 2011, (ii) the effective utilization rate(s) for our hydroelectric power projects by province in the years ended December 31, 2009, 2010 and 2011, and (iii) the weighted average effective utilization rate for our hydroelectric power projects for both the years ended December 31, 2009, 2010 and 2011.

Effective tariff is calculated as (a) gross revenues, revenues before netting for VAT and other applicable business surcharges, if any, recorded in the relevant period, divided by (b) the quantity of electricity sold in such period. Effective utilization rate of a hydroelectric power project is calculated as the quantity of electricity sold in the relevant period divided by the installed capacity for electricity generation in such period. The weighted average effective utilization rate of our hydroelectric power projects is calculated as the aggregate quantity of electricity sold in the relevant period, divided by the aggregate installed capacity for electricity generation of all our hydroelectric power projects for the period under consideration. As our effective tariffs are calculated using gross revenues, the product of our installed capacity, effective tariff and effective utilization rate for a hydroelectric power project is not equal to the net revenues for that plant in any given period. We use effective utilization rates to measure the historic ability of a hydroelectric power project to generate electricity during any given period. However, absent mechanical failure, damage to the hydroelectric power project or human error, effective utilization rates only reflect the effect of hydrological conditions for any given period, and are therefore not indicative of future effective utilization rates to be expected for a hydroelectric power project.

The design utilization rate for a hydroelectric power project is a calculation performed at the feasibility study phase used to assist in the design optimization of civil structures, and in the selection of turbine generator equipment. The design utilization rate for any given hydroelectric power project is the multi-year average electricity production a facility is capable of producing given the equipment selection and historical hydrological conditions. We use design utilization rates as a management tool in monitoring actual production against precipitation to ensure our hydroelectric power projects are operating to standard.

Cost of Revenues

Our cost of revenues consists primarily of depreciation, employee salaries and benefits for hydroelectric power project staff, water resource fees, non-capitalized maintenance and repair costs, amortization expenses relating to water use rights and dam use rights, and other operating costs directly related to the generation of electricity. We expect that as we optimize the management and staffing of our newly acquired plants, we may in the future reduce the cost of revenues associated with operating any given plant.

Operating Expenses

Our general and administrative expenses comprise employee salaries and benefits for corporate and project level staff that are not classified as direct labor and therefore included in cost of revenue, office rent, travel and entertainment, office supplies, amortization of intangible assets, costs of our acquisitions that cannot otherwise be capitalized, and professional fees such as audit and legal fees. Share-based compensation expense represents the period cost associated with stock option grants.

EBITDA from continuing operations, as adjusted

We have included earnings before interest, taxes, depreciation and amortization and certain non-cash charges, which we refer to as EBITDA, as adjusted, a non-GAAP financial measure, on a consolidated basis in this annual report. We had EBITDA from continuing operations, as adjusted, attributable to China Hydroelectric Corporation shareholders of $22.8 million, $42.8 million and $31.5 million in the year ended December 31, 2009, 2010 and 2011, respectively.

We believe that EBITDA, as adjusted, is a useful financial metric to assess our operating and financial performance before the impact of investing and financing transactions and income taxes. In

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addition, we believe that EBITDA is widely used by other companies in the power industry and may be used by investors as a measure of our financial performance. We note, however, that as individual companies may have different methods of calculating EBITDA for their business, their EBITDA results may not be directly comparable to our EBITDA, as adjusted. Given the significant investments that we have made in the past in net property, plant and equipment, depreciation and amortization expense comprises a meaningful portion of our cost structure. We believe that EBITDA, as adjusted, will provide investors with a useful tool for comparability between periods because it eliminates depreciation and amortization expense attributable to capital expenditures and business acquisitions. The presentation of EBITDA, as adjusted, should not be construed as an indication that our future results will be unaffected by other charges and gains we consider to be outside the ordinary course of our business.

The use of EBITDA, as adjusted, has certain limitations. Depreciation and amortization expense for various long-term assets, income tax expenses, interest expenses and interest income and certain non-cash charges have been and will be incurred and are not reflected in the presentation of EBITDA, as adjusted. Each of these items should also be considered in the overall evaluation of our results. Additionally, EBITDA, as adjusted, does not consider capital expenditures and other investing and financing activities and should not be considered as a measure of our liquidity. We compensate for these limitations by providing the relevant disclosure of our depreciation and amortization, interest expense and interest income, income tax expenses, capital expenditures and other relevant items both in our reconciliations to the U.S. GAAP financial measures and in our consolidated financial statements, all of which should be considered when evaluating our performance. The term EBITDA, as adjusted, is not defined under U.S. GAAP, and EBITDA, as adjusted, is not a measure of net income, operating income, operating performance or liquidity presented in accordance with U.S. GAAP.

A reconciliation of EBITDA, as adjusted, to our net income (loss) is provided below:

	For the Year Ended December 31,
	2009				2010			2011
Net (loss) income attributable to China Hydroelectric shareholders		$	(19,396	)		$	3,742		$	(45,389	)
Interest expense, net			12,849				13,977			25,502
Other non-cash charges, including exchange loss and change in fair value of warrant liabilities and share-based compensation expense			14,387				4,105			10,379
Income tax expense			1,433				3,557			1,578
Interest expense, Income tax expense, depreciation and amortization related to discontinued operations			1,479				1,048			1,449
Impairment loss on long-lived assets			—				—			4,984
Impairment loss on goodwill			—				—			9,795
Provision for impairment allowance for doubtful accounts on amount due from related party and prepayments and other current assets			—				—			1,256
Depreciation of property, plant and equipment, and amortization of land use rights and intangible assets			12,030				16,359			21,936
EBITDA, attributable to China Hydroelectric shareholders, as adjusted		$	22,782			$	42,788		$	31,490

Year Ended December 31, 2011 Compared to Year Ended December 31, 2010

In March 2010, we acquired the Husahe hydroelectric power project. In June 2010, we acquired the Hengda hydroelectric power project. In August 2010, we completed the acquisition of the Xineng hydroelectric power project. In September 2010, we acquired the Xiaopengzu hydroelectric power project. In December 2010, we acquired Jinling, the owner of the Jinling hydroelectric power project, Jinling’s 55.0% controlling interest in Shaowu City Jinlong Hydropower Co. Ltd., the owner of the Jinlong hydroelectric power project, Jinling’s 74.0% controlling interest in Shaowu City Jintang Hydropower Co. Ltd., the owner of the Jintang hydroelectric power project, and Jinling’s 74.0% controlling interest in Shaowu City Jinwei Hydropower Co. Ltd., the owner of the Jinwei

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hydroelectric power project. In January 2011, we acquired the remaining 10.0% equity interest in Pingnan county Wangkeng Hydroelectric Co., Ltd. In April 2011, we acquired Dazhaihe hydroelectric power project. In December 2011, we sold Yuanping hydroelectric power project and the sale was completed in March 2012.Our results of operations for the year ended December 31, 2010 primarily reflect the results of operations during the various periods for which Husahe, Hengda, Xineng, Xiaopengzu, Jinling, Jinlong, Jintang and Jinwei hydroelectric power projects were consolidated in our financial statements, and the results of operations of Banzhu, Shapulong, Ruiyang, Zhougongyuan, Jiulongshan and Binglangjiang II hydroelectric power projects for the whole year of 2010.

Our results of operations for the year ended December 31, 2011 reflect the results of operations during the period for which Dazhaihe hydroelectric power project was consolidated in our financial statements, and the results of operations of Husahe, Hengda, Xineng, Xiaopengzu, Jinling, Jinlong, Jintang, Jinwei and Yuanping hydroelectric power projects for the whole year of 2011.

Revenues, Cost of Revenues and Gross Profit

Our revenues from continuing operations decreased by $5.8 million, or 9.2%, to $57.5 million in the year ended December 31, 2011, compared to revenues from continuing operations of $63.3 million in the year ended December 31, 2010. The decrease in revenue was primarily attributable to the net effect of (i) a $6.6 million, or 10.4%, decrease in revenue contributed by projects owned as of December 31, 2010, principally due to the effect of unfavorable hydrological factors in 2011, and (ii) a $0.8 million revenue contribution by the Dazhaihe hydroelectric project acquired in April 2011.

We sold 1,331.9 million and 1,397.8 million kilowatt hours of electricity in the years ended December 31, 2011 and 2010, respectively. In the year ended December 31, 2011, the electricity sold attributable to existing projects as of December 31, 2010 decreased by 98.4 million kWh, or 7.0%, compared to the year ended December 31, 2010, partially offset by the sale of 32.5 million kWh produced by the Dazhaihe hydroelectric power project acquired in April 2011.

The effective tariff of electricity sold by us in the years ended December 31, 2010 and 2011 was RMB0.33 per kWh and RMB0.30 per kWh, respectively. The effective tariff in the year ended December 31, 2011 was lower than that in the year ended December 31, 2010 because in 2010, 38.7%, 24.1% and 36.0% of the electricity sold and 52.1%, 13.9% and 32.9% of the gross revenue resulted from our hydroelectric power projects located in Zhejiang province, Yunnan province and Fujian province, respectively, where the average effective tariff was RMB0.43, RMB0.18 and RMB0.32 respectively, while in 2011, 29.1%, 38.2% and 31.7% of the electricity sold and 44.1%, 24.0% and 30.9% of the gross revenue resulted from our hydroelectric power projects located in Zhejiang province, Yunnan province and Fujian province, respectively, where the average effective tariff was RMB0.45, RMB0.19 and RMB0.31 respectively.

The effective utilization rate for the year ended December 31, 2011 for our hydroelectric power projects located in Sichuan, Yunnan, Zhejiang and Fujian provinces was 12.5%, 34.5%, 22.7% and 28.3%, respectively, compared to 15.4%, 39.1%, 32.1% and 50.0%, respectively, in 2010. In general, year over year comparisons plus or minus 5% during periods of normal equipment availability are attributed to natural fluctuation in precipitation and water flows. Among the newly acquired projects, the utilization rate of Aluhe, Zilenghe and Latudi hydroelectric power projects are relatively low due to the transmission limitations imposed by the local grid. The decrease of 9.4% and 22.6% in utilization in 2011 for the facilities located in Zhejiang and Fujian, respectively, is attributable to the unfavorable precipitation in these regions in 2011. As a result of the forgoing factors, the effective utilization rate for our entire portfolio of hydroelectric power projects was 28.0% in 2011, compared to 38.6% in 2010.

Our cost of revenues from continuing operations consist primarily of depreciation, as well as salaries and benefits for staff employed at our hydroelectric power projects, water resource fees, water reservoir fund, non-capitalized maintenance and repair expenses, amortization expenses relating to water use rights and other operating costs directly attributable to the production of electricity.

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The total cost of revenues from continuing operations increased by $8.5 million, or 35.4%, to $32.5 million in the year ended December 31, 2011, compared to $24.0 million in the year ended December 31, 2010. In the year ended December 31, 2011, the cost of revenue included the costs for twenty six hydroelectric power projects we acquired in previous years and one new acquisition made in April 2011 for Dazhaihe. $7.9 million, or 33.1%, was attributed to the inclusion of a full year of costs for our acquisitions of hydroelectric power projects in 2010. $0.7 million, or 2.9%, of the increase was the result of Dazhaihe hydroelectric power project acquired in 2011, offset by a decrease of $0.1 million, or 0.6% for other projects. In 2010, the cost of depreciation, employee salaries and benefits, and water resource fees accounted for 62.8%, 11.2%, and 6.6%, respectively, of the total cost of revenues, compared to 64.9%, 10.4%, and 4.0%, respectively, in 2011. We expect depreciation to continue to account for a high percentage of our cost of revenues since all our hydroelectric power projects are capital intensive.

As a result of the foregoing factors, our gross profit from continuing operations in the year ended December 31, 2011 was $25.0 million, a decrease of $14.3 million from $39.3 million for the year ended December 31, 2010. Gross profit margin from continuing operations was 43.5% for the year ended December 31, 2011, compared to 62.1% for the year ended December 31, 2010. The lower gross profit and margin from continuing operations in the year ended December 31, 2011 compared to the prior year were principally attributable to lower revenues from continuing operations due to hydrological conditions and the fixed nature of expenses included in cost of revenues from continuing operations, primarily depreciation expense.

Operating Expenses

Our operating expenses from continuing operations for the years ended December 31, 2010 and 2011 consisted entirely of general and administrative expenses incurred at both the project level and at the corporate level, and principally consist of salaries and benefits, professional fees, non-cash employee stock option expenses, rent, travel expenses, office supplies, acquisition related expenses, and other costs related to the management and expansion of our business. Operating expenses from continuing operations increased by $9.7 million, or 50.3%, to $29.0 million in the year ended December 31, 2011, compared to $19.3 million in the year ended December 31, 2010 for the reasons described below.

General and administrative expenses from continuing operations incurred at the hydroelectric power project level principally consist of salaries, travel expenses which increased from $3.3 million in the year ended December 31, 2010 to $6.4 million in the year ended December 31, 2011, principally attributable to the eight additional projects acquired during 2010 and the one project acquired in April 2011.

General and administrative expenses from continuing operations at the corporate level increased by $6.6 million from $16.0 million in the year ended December 31, 2010 to $22.6 million in the year ended December31, 2011. This increase resulted from an increase of $6.9 million in share-based compensation expense, from $3.6 million in the year ended December 31, 2010 to $10.5 million in the year ended December 31, 2011, due to the one-time amortization of the remaining share-based compensation cost associated with the stock options granted prior to 2010 in connection with the fair value to fair value option exchange program described in Note 25 to the accompanying consolidated financial statements, a decrease of $1.3 million for employee salaries and benefits and an increase of $1.0 million for other expenses.

Of the $22.6 million in corporate level general and administrative expenses in the year ended December 31, 2011, share-based compensation expenses of $10.5 million accounted for 46.5%, employee salaries and benefits of $4.8 million accounted for 21.2%, while professional fees of $3.1 million, including consulting, legal and auditing fees accounted for 13.7%. Other costs, such as travel expenses, lease expenses, acquisition related project expenses, director fees and insurance expenses accounted for the remaining 18.6%. In the year ended December 31, 2010, employee salaries and benefits of $6.1 million accounted for 38.1% of the corporate general and administrative expenses, while expenses for share-based compensation and professional fee accounted for 22.5% and 18.1%, respectively, of the corporate general and administrative expenses. Other costs, such as travel

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expenses, lease expenses, acquisition related project expenses, director and insurance expenses, accounted for the remaining 21.3% of the corporate overhead expenses.

Operating Profit (Loss)

Our operating loss from continuing operations was $4.0 million for the year ended December 31, 2011, compared to operating profit from continuing operations of $20.0 million for the year ended December 31, 2010, principally as a result of the effect on revenues from significantly lower than average precipitation during 2011 compared to significantly higher than average precipitation during 2010, the fixed nature of our cost of revenue and increased general and administrative expenses, as well as the effect a one-time write off unamortized share-based compensation expense of $6.8 million in 2011 for the reasons described above.

Other Income and Expenses

Our interest expense from continuing operations increased by $11.4 million, or 75.0%, to $26.6 million in the year ended December 31, 2011, compared to $15.2 million in the year ended December 31, 2010. The interest on bank loans increased by $5.7 million to $20.0 million in the year ended December 31, 2011 compared to $14.3 million in the year ended December 31, 2010. Interest penalty to original shareholders of acquired subsidiaries increased by $2.4 million from $0.1 for the year ended December 31, 2010. Interest on loans from unrelated parties increased by $2.6 million from $nil for the year ended December 31, 2010. Other interest costs, such as accrued interest on unrecognized tax benefits, bank charges, amortization of debt costs accounted for the remaining $0.7 million increase.

We recorded interest income from continuing operations of $1.2 million and $0.1 million in the years ended December 31, 2010 and 2011, respectively. The decrease in interest income was primarily due to a lower average balance of bank deposits.

We also experienced exchange losses from continuing operations of $855,000 and $851,000 for the years ended December 31, 2010 and 2011, respectively. The exchange loss for the year ended December 31, 2011 was due to (i) depreciation of the U.S. dollars that we hold in our PRC subsidiaries against their functional currency, the RMB, and (ii) timing differences between the setting of the RMB purchase price of our acquisitions and our payment for the acquisitions through conversion of U.S. dollars.

Income Tax

We incurred income tax expenses from continuing operations of $3.6 million and $1.5 million in the years ended December 31, 2010 and 2011, respectively. We have adopted an income tax return preparation method principally based on tax invoices issued and received. In accordance with applicable PRC income tax laws and regulations, an income tax return should be prepared based on accounting income following certain tax adjustments. As of December 31, 2011, we have recognized an additional income tax provision of 2.8 million for unrecognized tax benefits which represent the estimated income tax expense we would pay for the year ended December 31, 2011 if our income tax returns had been prepared in accordance with applicable PRC tax laws and regulations. We also recognized a decrease of unrecognized tax benefits of $87,000 related to the deduction for prior year tax positions.

Noncontrolling Interest

In the year ended December 31, 2011, we recorded $9.9 million for the net loss attributable to noncontrolling interests relating to the impairment of Wuyue project, operation loss and goodwill impairment loss of Jinling and its subsidiaries, compared to an income of $243,000 for the net income attributable to noncontrolling interests relating to Wangkeng in the year ended December 31, 2010.

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Impairment Loss on Long-Lived Assets

In the year ended December 31, 2011, we recorded an impairment loss on long-lived assets of $11.6 million for expenditures for Wuyue pumped storage hydropower project in Henan province previously classified as Construction in Progress on our consolidated balance sheet. Net of noncontrolling interest, the loss attribute to the Company was $5.0 million.

Impairment Loss on Goodwill

In the year ended December 31, 2011, we recorded an impairment loss on goodwill of $4.2 million, $1.1 million and $6.1 million for Xiaopengzu, Xineng, Jinling and its subsidiaries, respectively, due to the significant reduction of the Company’s market capitalization since the beginning of 2011.

Net (Loss) Income from Continuing Operations

The foregoing factors resulted in a net loss from continuing operations of $55.3 million in the year ended December 31, 2011, as compared to net income of $2.1 million in the year ended December 31, 2010.

Net (Loss) Income Attributable to Ordinary Shareholders

In the year ended December 31, 2011, the net loss from continuing operations attributable to ordinary shareholders was $45.4 million as compared to net income from continuing operations attributable to ordinary shareholders of $3.7 million in the year ended December 31, 2010.

Year Ended December 31, 2010 Compared to Year Ended December 31, 2009

In March 2009, we acquired the remaining 10.0% interest in Banzhu. In August 2009, we completed the acquisition of the remaining 50.0% equity interest in Shapulong, and Shapulong has been accounted for as our subsidiary, not an equity investee, since then. We also completed the acquisition of the Ruiyang hydroelectric power project in August 2009. Finally, the construction of the Zhougongyuan, which was later split into Zhougongyuan and Jiulongshan projects at the end of 2009, and Binglangjiang II hydroelectric power projects was completed in March 2009 and September 2009, respectively. In March 2010, we acquired Husahe hydroelectric power project. In June 2010, we acquired Hengda hydroelectric power project. In August 2010, we completed the acquisition of Xineng hydroelectric power project. In September 2010, we acquired Xiaopengzu hydroelectric power project. In December 2010, we acquired Jinling, the owner of the Jinling hydroelectric power project, Jinling’s 55.0% controlling interest in Shaowu City Jinlong Hydropower Co. Ltd., the owner of the Jinlong hydroelectric power project, Jinling’s 74.0% controlling interest in Shaowu City Jintang Hydropower Co. Ltd., the owner of the Jintang hydroelectric power project, and Jinling’s 74.0% controlling interest in Shaowu City Jinwei Hydropower Co. Ltd., the owner of the Jinwei hydroelectric power project.

Our results of operations for the year ended December 31, 2009 primarily reflect the results of operations during this period for the Binglangjiang I, Liyuan, Yingchuan, Wuliting, Banzhu, Wangkeng, Yuanping and Yuheng hydroelectric power projects, the results of operations of Shapulong and Ruiyang for the period of our full ownership, and the results of operations of Binglangjiang II and Zhougongyuan for their periods of operation.

Our results of operations for the year ended December 31, 2010 primarily reflect the results of operations during the period for which Husahe, Hengda, Xineng, Xiaopengzu, Jinling, Jinlong, Jintang and Jinwei hydroelectric power projects were consolidated to our financial statements, and the results of operations of Banzhu, Shapulong, Ruiyang, Zhougongyuan, Jiulongshan and Binglangjiang II hydroelectric power projects for the whole year of 2010.

Revenues, Cost of Revenues and Gross Profit

Our revenues from continuing operations increased by $29.0 million, or 84.5%, to $63.3 million in the year ended December 31, 2010, compared to $34.3 million in the year ended December 31,

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2009. Of the increase, $7.2 million, or 24.8%, is attributable to the inclusion of the full year sale of electricity generated from Shapulong and Ruiyang hydroelectric power projects acquired in Zhejiang province in August 2009. $3.7 million, or 12.8%, is attributable to the inclusion of the full year sale of electricity generated from Zhougongyuan and Binglangjiang II hydroelectric power projects which were commissioned in 2009, $13.5 million, or 46.6%, resulting from more favorable hydrological conditions and more effective management of our facilities in Fujian and Zhejiang province and, $4.6 million, or 15.9%, was the result of our new acquisitions of the hydroelectric power projects in Yunnan province in 2010.

Our revenues from continuing operations in the year ended December 31, 2010 were derived from the sale of 1,397.8 million kilowatt hours of electricity at our hydroelectric power projects during the periods in which their results of operations were consolidated with our company’s, while our revenues in the year ended December 31, 2009 were derived from the sale of 754.6 million kilowatt hours of electricity during the periods in which their results of operations were consolidated with our company’s. In the years ended December 31, 2009 and 2010, the effective tariff of electricity sold by us was RMB0.34 per kWh and RMB0.33 per kWh, respectively. The effective tariff for electricity sold in the year ended December 31, 2010 was slightly lower than that in the year ended December 31, 2009 because in 2009, 37.8%, 16.5% and 40.3% of the electricity sold and 51.7%, 9.4% and 35.7% of the gross revenue were derived from our hydroelectric power projects in Zhejiang province, Yunnan province and Fujian province respectively, where the average effective tariff was RMB0.45, RMB0.17 and RMB0.32 respectively, while in 2010, 38.7%, 24.1% and 36.0% of the electricity sold and 52.1%, 13.9% and 32.9% of the gross revenue resulted from our hydroelectric power projects located in Zhejiang province, Yunnan province and Fujian province respectively where the average effective tariff was RMB0.43, RMB0.18 and RMB0.32 respectively.

The effective utilization rate for the year ended December 31, 2010 for our hydroelectric power projects located in Sichuan, Yunnan, Zhejiang and Fujian provinces was 15.4%, 39.1%, 32.1% and 50.0% respectively, compared to 22.3%, 51.4%, 22.9% and 30.2% respectively in 2009. In general, year over year comparisons plus or minus 5.0% during periods of normal equipment availability are attributed to natural fluctuation in precipitation and water flows. The decrease of 6.9% utilization for the facilities located in Sichuan province is mainly attributable to the floods that occurred in that region in 2010. The decrease of 12.3% in utilization for the facilities located in Yunnan province is mainly attributable to the severe drought in Yunnan province and the inclusion of an additional 116.8 MW of capacity (from 41.0 MW to 157.8 MW). Among the newly acquired projects, the utilization rate of Aluhe, Zilenghe and Latudi hydroelectric power projects are relatively low due to the transmission limitation imposed by the local grid company. The increase of 9.2% and 19.8% in utilization between 2009 and 2010 for the facilities located in Zhejiang and Fujian, respectively, is attributable to the favorable precipitation in these regions in 2010. As a result of the forgoing factors, the effective utilization rate for our entire portfolio of hydroelectric power projects was 39.4% in 2010, compared to 30.8% in 2009.

Our cost of revenues from continuing operations consist primarily of depreciation, salaries and benefits for staff employed at our hydroelectric power projects, water resource fees, water reservoir fund, non-capitalized maintenance and repair expenses, amortization expenses relating to water use rights and other operating costs directly attributable to the production of electricity.

The total cost of revenues from continuing operations increased by $7.5 million, or 45.5%, to 24.0 million in the year ended December 31, 2010, compared to $16.5 million in the year ended December 31, 2009. The total cost of revenues in the year ended December 31, 2009 included the costs for sixteen hydroelectric power projects while in the year ended December 31, 2010, the cost of revenue included the costs for twenty six hydroelectric power projects. $1.9 million, or 25.3%, of the increase is attributable to the inclusion of the full year sale of electricity generated from Shapulong and Ruiyang hydroelectric power projects acquired in Zhejiang province in August 2009. $2.2 million, or 29.3%, of the increase is attributable to the inclusion of the full year sale of electricity generated from Zhougongyuan and Binglangjiang II hydroelectric power projects which were commissioned in 2009. $1.3 million, 17.3%, of the increase resulted from the increased variable cost due to increased power generation in Fujian and Zhejiang province. $2.1 million, or 28.0%, of the increase was the result of our new acquisitions of the hydroelectric power projects in Yunnan in

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2010. In 2009, the cost of depreciation, employee salaries and benefits, and water resource fees accounted for 66.7%, 8.5%, and 5.3%, respectively, of the total cost of revenues, compared to 62.8%, 11.2%, and 6.6% of the total cost of revenues in 2010. We expected a high percentage of the depreciation to our cost of revenues since all our hydroelectric power projects are capital intensive and depreciation shall account for a significant portion of our cost of revenues. The water resources fee was levied by the local tax authority, at around 2.5% of the gross revenue for 2010.

As a result of the foregoing factors, our gross profit from continuing operations in the year ended December 31, 2010 from continuing operations was $39.3 million, increased by $21.4 million from that of $17.9 million for the year ended December, 31, 2009. Gross profit margin was 62.1% for the year ended December 31, 2010, compared to 52.2% for the year ended December 31, 2009.

Operating Expenses

Our total operating expenses from continuing operations for the years ended December 31, 2009 and 2010 consisted entirely of general and administrative expenses relating to acquisition related expenses, salaries and benefits for staff employed other than at the hydroelectric power projects, office lease payments, travel and entertainment expenses, office supplies expenses, as well as other costs related to the expansion of our business, as well as share-based compensation expense. General and administrative expenses from continuing operations increased by $10.3 million, or 114.4%, to $19.3 million in the year ended December 31, 2010, compared to $9.0 million in the year ended December 31, 2009, reflecting expanded operations due to acquisitions. Share-based compensation expense increased from $571,000 to $3.6 million for the years ended December 31, 2009 and 2010, respectively, as a full year of such expense is reflected in 2010.

General and administrative expenses consist of hydroelectric power project related expenses, primarily salaries, travel and entertainment expenses and consulting expenses, and corporate overhead expenses, primarily salaries and benefits for non-hydroelectric power project employees, office lease payments, employee stock option expenses, and travel and entertainment expenses. Project related general and administrative expenses from continuing operations increased from $2.2 million in the year ended December 31, 2009 to $3.3 million in the year ended December 31, 2010, reflecting increased operations resulting from the two acquisitions completed in August 2009, the completion of the Zhougongyuan and Binglangjiang II hydroelectric power projects, and the four acquisitions completed in 2010, which resulted in an increase in salaries, travel expenses, entertainment expenses and miscellaneous office expenses.

Corporate general and administrative expenses from continuing operations increased by 9.2 million, or 135.3%, from $6.8 million in the year ended December 31, 2009 to $16.0 million in the year ended December 31, 2010. This resulted from an increases of $2.4 million in employee salaries and benefits relating to compensation increases for our officers and additional employees hired in the year ended December 31, 2010, $1.9 million for professional fees, including accounting and auditing fees. In the year ended December 31, 2010, employee salaries and benefits of $6.1 million accounted for 38.1% of corporate general and administrative expenses, professional fees, including consulting, legal and auditing fees of $2.9 million, accounted for 18.1% of the corporate general and administrative expenses. Other costs such as travel expenses, lease expenses, acquisition related project expenses, director and insurance expenses of $7.0 million accounted for the remaining 43.8% of the corporate general and administrative expenses.

Operating (Loss) Income

Our operating income from continuing operations was $20.0 million for the year ended December 31, 2010, compared to $8.9 million for the year ended December 31, 2009, as a result of the effect on revenues from significantly higher than average precipitation during 2010, the fixed nature of our cost of revenue, and from the net effect of gross profit contributed by acquisitions closed in 2001 and 2010 less related operating expenses.

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Other Income and Expenses

Our interest expense from continuing operations increased by $1.8 million, or 13.4%, to $15.2 million in the year ended December 31, 2010, compared to $13.4 million in the year ended December 31, 2009. Our interest expense for the year ended December 31, 2009 arose primarily from interest incurred from long-term loans, interest penalty to original shareholders of an acquired subsidiary and other charges from banks. Our increased interest expense in the year ended December 31, 2010 was primarily due to interest expenses on long-term loans obtained by Binglangjiang, Hengda, Xineng, Xiaopengzu, Wuliting, Yingchuan, Zhougongyuan, Shapulong, Ruiyang, Jiulongshan, Yuanping, Yuheng, Wangkeng and Banzhu in the year ended December 31, 2010. Long-term loans outstanding as of December 31, 2009 and December 31, 2010 were $229.3 million and $285.1 million, respectively.

We recorded interest income from continuing operations of $0.5 million and $1.2 million in the years ended December 31, 2009 and 2010, respectively. The increase in interest income was primarily due to a higher average balance of bank deposits.

We also experienced exchange losses from continuing operations of $23,000 and $855,000 for the years ended December 31, 2009 and 2010, respectively. The exchange loss for the year ended December 31, 2010 was due to (i) depreciation of the U.S. dollars that we hold in our PRC subsidiaries against their functional currency, the RMB, and (ii) timing differences between the setting of the RMB purchase price of our acquisitions and our payment for the acquisitions through conversion of U.S. dollars.

In 2009, we recorded a loss caused by the increase in the fair value of warrant liabilities from continuing operations of $13.8 million, which was related to the warrants, exercisable for the purchase of our Series A convertible redeemable preferred shares, issued to Morgan Joseph in January 2008. The significant increase in fair value is primarily attributable to the higher underlying ordinary share price of our company at December 31, 2009, which increased from $1.74 as of December 31, 2008 to $4.93 as of December 31, 2009, based on the evaluation by American Appraisal China limited. In 2010, we recorded a decrease in the fair value of warrant liabilities of $365,000, due to the decrease of the fair value of the ordinary share appraised by American Appraisal China Limited, from $4.93 per share as of December 31, 2009 to $4.63 per share as of January 25, 2010. On January 25, 2010, our IPO date, the warrant liabilities were reclassified to equity resulting from the automatic conversion of the underlying Series A convertible redeemable preferred shares to ordinary shares.

In the year ended December 31, 2009, we recorded losses in our equity investment in Shapulong from continuing operations of $70,000, compared to nil in the year ended December 31, 2010. Shapulong’s results of operations were consolidated with our company’s following our acquisition of its remaining 50.0% equity interest in August 2009. In the year ended December 31, 2009, the Shapulong hydroelectric power project sold 40.6 million kWh of electricity and operated at an effective utilization rate of 18.6%. In the year ended December 31, 2010, Shapulong sold 64.6 million kWh of electricity and operated at an effective utilization rate of 29.5%.

Income Tax

We incurred income tax expenses from continuing operations of $1.4 million and $3.6 million in the years ended December 31, 2009 and 2010, respectively. We have adopted an income tax return preparation method principally based on tax invoices issued and received. In accordance with applicable PRC income tax laws and regulations, an income tax return should be prepared based on accounting income following certain tax adjustments. As of December 31, 2010, we have recognized an additional income tax provision of $1.4 million for unrecognized tax benefits which represent the estimated income tax expense we would pay for the year ended December 31, 2010 if our income tax returns had been prepared in accordance with applicable PRC tax laws and regulations. We also recognized a decrease of unrecognized tax benefits of $0.1 million related to the settlement with the tax authority of Yinchuan.

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Noncontrolling Interest

In the year ended December 31, 2010, we recorded an expense of $243,000 for the net income attributable to noncontrolling interests relating to Wangkeng, compared to income of $32,000 for the net loss attributable to the noncontrolling interests relating to Wangkeng and Banzhu in the year ended December 31, 2009.

Net (Loss) Income Attributable to Ordinary Shareholders

The foregoing factors resulted in our net income of $3.7 million in the year ended December 31, 2010, as compared to our net loss of $19.4 million in the year ended December 31, 2009.

(Loss) Attributable to Ordinary Shareholders After Dividends and Accretion of Beneficial Conversion Feature

In the year ended December 31, 2010, loss attributable to ordinary shareholders was $12.1 million, comprising a net income of $3.7 million in this period, cumulative dividends on our Series A, Series B and Series C convertible redeemable preferred shares of $2.0 million, $1.4 million, and $0.2 million, respectively, and beneficial conversion feature accretion charges on our Series A, Series B and Series C convertible redeemable preferred shares of $7.0 million, $5.0 million, and $0.2 million, respectively,

Pursuant to the terms of our Series A, Series B and Series C convertible redeemable preferred shares, holders of such preferred shares are entitled to receive cash dividends on each such preferred share at the rate of 10% per annum of the issuance price plus any accrued dividends when and if declared by our board of directors. However, in the event that a qualified public officering, as defined in the Series A, Series B and Series C preferred shares agreements, has not occurred on or before April 28, 2009, September 30, 2009 and December 31, 2010, respectively, such dividend rate increases by 1.0% per annum, and shall further increase by 1.0% per annum as of each subsequent dividend accrual date but under no circumstances shall the dividend rate exceed 15.0% per annum.

For additional terms applicable to dividend payments related to our Series A, Series B and Series C convertible redeemable preferred shares, see Note 16 to our audited consolidated financial statements included elsewhere in this annual report. Up to the date of our IPO, no cash dividends were declared on our Series A, Series B and Series C convertible redeemable preferred shares, and cumulative dividends of $2.0 million, $1.4 million, and $0.2 million for the Series A, Series B and Series C convertible redeemable preferred shares, respectively, were accrued and recorded as a reduction of income available to the ordinary shareholders for the year ended December 31, 2010.

On January 25, 2010, the Company completed an IPO, whereby the Company issued 6,000,000 units of securities at $16.00 per unit. Each unit consists of one ADS priced at $14.80 and one warrant priced at $1.20. Each ADS represents three ordinary shares and each warrant entitles the holder to purchase three ordinary shares for an exercise price of $15.00. Upon the IPO, all Series A, Series B and Series C convertible redeemable preferred shares and related preferred share dividends accrued up to the date of IPO were converted into ordinary shares. The number of ordinary shares into which the Series A, Series B and Series C convertible redeemable preferred shares are convertible were equal to 60%, 60% and 70%, respectively, of the price of $4.93 at which ordinary shares underlying ADSs are sold in this Offering. The Series A convertible redeemable preferred shares and related preferred share dividends amounting to $186,530 were converted in to 63,016,780 ordinary shares, or 21,005,593 ADS, at the price of $2.96. The Series B convertible redeemable preferred shares and related preferred share dividends amounting to $150,355 were converted in to 50,795,457 ordinary shares, or 16,931,819 ADS, at the price of $2.96. The Series C convertible redeemable preferred shares and related preferred share dividends amounting to $ 20,518 were converted in to 5,941,613 ordinary shares, or 1,980,538 ADS, at the price of $ 3.45. Accretion charges amounting to $6,990, $5,040 and $222 incurred on beneficial conversion feature on the Series A, Series B and Series C convertible redeemable preferred shares, respectively, were recorded in retained earnings.

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Geographic Information

We manage our business, in part, through the analysis of electricity demand, hydrological conditions and the existing hydroelectric power markets in the different provinces where we operate. For the year ended December 31, 2011, 2010 and 2009, we operated and managed our business as four operating and reportable geographic segments, namely, the Yunnan province segment, the Sichuan province segment, the Zhejiang province segment and the Fujian province segment.

Our segment information for the year ended December 31, 2011 is as follows:

	Yunnan Province			Sichuan Province			Zhejiang Province			Fujian Province			Unallocated			Elimination			Consolidated
	US$			US$			US$			US$			US$			US$			US$
Revenues		13,806			555			25,382			17,801			—			—			57,544
Cost of revenues		(8,349	)		(568	)		(15,034	)		(12,337	)		—			3,743			(32,545	)
General and administrative expenses including share-based compensation expense of $10,479		(1,519	)		(86	)		(1,148	)		(2,408	)		(23,867	)		—			(29,028	)
Interest income		180			10			128			1,736			66			(2,018	)		102
Interest expense		(8,468	)		—			(8,565	)		(11,462	)		(73	)		2,018			(26,550	)
Change in fair value of warrant liabilities		—			—			—			—			951			—			951
Exchange loss		(28	)		—			—			(244	)		(579	)		—			(851	)
Impairment loss on goodwill		(5,260	)		—			—			(6,128	)		—			—			(11,388	)
Impairment loss on long-lived assets		—			—			—			—			(11,601	)		11			(11,590	)
Other (loss) income, net		(285	)		—			(36	)		(172	)		4,033			(3,888	)		(348	)
Income tax (expense) benefit		(142	)		5			(843	)		93			(662	)		—			(1,549	)
Net loss from continuing operations		(10,065	)		(84	)		(116	)		(13,121	)		(31,732	)		(134	)		(55,252	)
Net (loss) income from discontinued operations (net of income tax expense of US$79)		—			—			—			(181	)		—			143			(38	)
Net (loss) income		(10,065	)		(84	)		(116	)		(13,302	)		(31,732	)		9			(55,290	)
Net loss attributable to noncontrolling interests		—			—			—			2,546			7,355			—			9,901
Net income (loss) attributable to China Hydroelectric Corporation shareholders		(10,065	)		(84	)		(116	)		(10,756	)		(24,377	)		9			(45,389	)
Total assets		200,681			15,896			318,616			374,296			421,650			(516,224	)		814,915
Total liabilities		(133,670	)		(753	)		(138,688	)		(185,330	)		(20,498	)		58,902			(420,037	)
Capital expenditures		1,763			1,128			3,031			645			970			(5	)		7,532
Depreciation & amortization expenses		5,181			344			9,837			7,281			115			—			22,758

Unallocated general and administrative expenses of $23.9 million for the year ended December 31, 2011 related primarily to various administrative costs associated with supporting the operations of our existing hydropower plants and the acquisitions completed by us in 2011. Unallocated change in

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fair value of warrant liabilities related to the fair value valuation of the partial warrant exercised by Vicis Master Fund. Unallocated other income, net for the year ended December 31, 2011 mainly consisted of administrative charges levied by the Beijing corporate operation on our operating subsidiaries.

Our segment information for the year ended December 31, 2010 is as follows:

	Yunnan Province			Sichuan Province			Zhejiang Province			Fujian Province			Unallocated			Elimination			Consolidated
	US$			US$			US$			US$			US$			US$			US$
Revenues		8,822			660			32,959			20,840			(1	)		—			63,280
Cost of revenues		(4,059	)		(597	)		(14,414	)		(7,537	)		1			2,636			(23,970	)
General and administrative expenses including share-based compensation expense of $3,615		(605	)		(148	)		(1,319	)		(1,195	)		(16,040	)		—			(19,307	)
Interest income		9			16			8			1,119			557			(519	)		1,190
Interest expense		(2,945	)		—			(7,493	)		(5,199	)		(49	)		519			(15,167	)
Change in fair value of warrant liabilities		—			—			—			—			365			—			365
Exchange loss		—			—			—			(452	)		(403	)		—			(855	)
Other (loss) income, net		(4	)		29			(133	)		(66	)		3,087			(2,791	)		122
Income tax benefit (expense)		204			1			(2,138	)		(1,541	)		(83	)		—			(3,557	)
Net income (loss) from continuing operations		1,422			(39	)		7,470			5,969			(12,566	)		(155	)		2,101
Net income from discontinued operations (net of income tax benefit of US$197)		—			—			—			1,729			—			155			1,884
Net income (loss)		1,422			(39	)		7,470			7,698			(12,566	)		—			3,985
Net income attributable to noncontrolling interests		—			—			—			(243	)		—			—			(243	)
Net income (loss) attributable to China Hydroelectric Corporation shareholders		1,422			(39	)		7,470			7,455			(12,566	)		—			3,742
Total assets		183,888			14,910			305,927			396,388			435,361			(506,018	)		830,456
Total liabilities		(117,138	)		(420	)		(138,055	)		(202,276	)		(20,578	)		64,994			(413,473	)
Capital expenditures		879			569			250			317			1,380			—			3,395
Depreciation & amortization expenses		2,660			373			9,392			3,853			92			—			16,370

Unallocated general and administrative expenses of $16.0 million for the year ended December 31, 2010 related primarily to various administrative costs associated with indirectly supporting the operations of our existing hydropower plants, and the acquisitions completed by us during that year.

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Unallocated change in fair value of warrant liabilities is related to the fair value valuation of our preferred share warrants issued to Morgan Joseph, with a valuation date at its derecognition upon IPO. Unallocated other income, net for the year ended December 31, 2010 mainly consisted of administrative charges levied by the Beijing corporate operation on our operating subsidiaries.

Our segment information for the year ended December 31, 2009 is as follows:

	Yunnan Province			Sichuan Province			Zhejiang Province			Fujian Province			Unallocated			Elimination			Consolidated
	US$			US$			US$			US$			US$			US$			US$
Revenues		2,966			939			18,164			12,258			—			—			34,327
Cost of revenues		(1,193	)		(583	)		(9,774	)		(6,525	)		—			1,617			(16,458	)
General and administrative expenses including share-based compensation expense of $571		(330	)		(203	)		(1,178	)		(517	)		(6,775	)		—			(9,003	)
Interest income		115			38			57			18			319			(37	)		510
Interest expense		(303	)		—			(7,020	)		(5,685	)		(388	)		37			(13,359	)
Change in fair value of warrant liabilities		—			—			—			—			(13,793	)		—			(13,793	)
Exchange loss		—			(1	)		(5	)		(7	)		(10	)		—			(23	)
Share of losses in an equity investee		—			—			—			—			(70	)		—			(70	)
Other (loss) income, net		(2	)		(1	)		(9	)		(265	)		1,760			(1,708	)		(225	)
Income tax expense		(166	)		(51	)		(403	)		(680	)		(133	)		—			(1,433	)
Net income (loss) from continuing operations		1,087			138			(168	)		(1,403	)		(19,090	)		(91	)		(19,527	)
Net income from discontinued operations (net of income tax expense of US$59)		—			—			—			8			—			91			99
Net income (loss)		1,087			138			(168	)		(1,395	)		(19,090	)		—			(19,428	)
Net loss attributable to noncontrolling interests		—			—			—			32			—			—			32
Net income (loss) attributable to China Hydroelectric Corporation shareholders		1,087			138			(168	)		(1,363	)		(19,090	)		—			(19,396	)
Total assets		42,770			14,649			311,685			204,347			337,472			(317,090	)		593,833
Total liabilities		(15,494	)		(556	)		(152,898	)		(112,187	)		(34,506	)		23,002			(292,639	)
Capital expenditures		7,661			1,616			1,826			1,732			141			—			12,976
Depreciation & amortization expenses		845			338			6,887			3,881			78			—			12,029

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Unallocated general and administrative expenses of $6.8 million for the year ended December 31, 2009 related primarily to various administrative costs associated with indirectly supporting the operations of our existing hydropower plants, and the acquisitions completed by us during that year. Unallocated change in fair value of warrant liabilities is related to the fair value valuation of our preferred share warrants issued to Morgan Joseph, with a valuation date of December 31, 2009. Unallocated other income, net for the year ended December 31, 2009 mainly consisted of administrative charges levied by the Beijing corporate operation on our operating subsidiaries.

Holding Company Structure

China Hydroelectric Corporation is a holding company with no material operations of its own, and conducts all operations in China through subsidiaries. As a result, the ability of the holding company to pay dividends and to finance any debt it may incur depends upon dividends paid by its subsidiaries. If its current or future subsidiaries and company incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to the holding company. In addition, the subsidiaries in China are only permitted to pay dividends to us out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Under relevant PRC laws and regulations, wholly foreign-owned enterprises in China are required to set aside at least 10% of their after-tax profits each year, if any, to fund the reserve fund unless such reserve fund has reached 50% of their respective registered capital, and set aside a percentage of their after-tax profits to their employee bonus and welfare fund which is decided by the enterprises themselves. Sino-foreign equity joint ventures are required to set aside their reserve fund, enterprise development fund and employee bonus and welfare fund at percentages that are decided by any such entity’s board of directors. PRC domestic companies are required to set aside at least 10% of their after-tax profits each year, if any, to fund their respective statutory reserve fund unless such fund has reached 50% of their respective registered capital. Although the statutory reserves can be used to, among other things, increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, the reserves may not be distributed as cash dividends except in the event of liquidation of the companies. See Note 1 to the audited consolidated financial statements included elsewhere in this annual report.

Recently Issued Accounting Standards

In April 2011, the FASB issued ASU No. 2011-03 (“ASU 2011-03”) “Reconsideration of Effective Control for Repurchase Agreements”. The revised guidance remove from the assessment of effective control the criterion relating to the transferor’s ability to repurchase or redeem financial assets on substantially the agreed terms, even in the event of default by the transferee. The amendments in this Update also eliminate the requirement to demonstrate that the transferor possesses adequate collateral to fund substantially all the cost of purchasing replacement financial assets. The revised guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. The company is currently evaluating the impact on its consolidated financial statements of adopting this guidance.

In May 2011, the FASB issued ASU No. 2011-04 (“ASU 2011-04”), Fair Value Measurement (“ASC 820”) which amends the fair value measurement guidance and includes some enhanced disclosure requirements. The most significant change in disclosures is an expansion of the information required for Level 3 measurements based on unobservable inputs. The standard is effective for fiscal years beginning after December 15, 2011. Early application by public entities is not permitted. The company is currently evaluating the impact on its consolidated financial statements of adopting this guidance.

In June 2011, the FASB issued ASU No. 2011-05 (“ASU 2011-05”), Comprehensive Income (Topic 220), Presentation of Comprehensive Income, which eliminates the current option to report other comprehensive income (“OCI”) and its components in the statements of shareholders’ equity. Instead, an entity will be required to present items of net income and OCI in one continuous

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statement or in two separate, but consecutive, statements. In December 2011, the FASB issued ASU No. 2011-12 (“AUS 2011-12”), Comprehensive Income (Topic 220), Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. This ASU defers the ASU 2011-05 requirement that companies present reclassification adjustments for each component of OCI in both net income and OCI on the face of the financial statements and the requirement to report reclassification adjustments in interim periods. The amendments in ASU 2011-05 and ASU 2011-12 should be applied retrospectively and are effective for fiscal years and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. The company is currently evaluating the impact on its consolidated financial statements of adopting this guidance.

In September 2011, the FASB issued ASU No. 2011-08 (“ASU 2011-08”), Intangibles—Goodwill and Other (“ASC 350”), which is intended to reduce the cost and complexity of the annual goodwill impairment test by providing entities an option to perform a “qualitative” assessment to determine whether further impairment testing is necessary. Specifically, an entity has the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step test. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. This standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The company is currently evaluating the impact on its consolidated financial statements of adopting this guidance.

In December 2011, the FASB issued ASU No. 2011-11 (“ASU 2011-11”) “Disclosures about Offsetting Assets and Liabilities”. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. This scope would include derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. An entity is required to apply the amendments retrospectively for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The company is currently evaluating the impact on its consolidated financial statements of adopting this guidance.

In December 2011, the FASB issued ASU No. 2011-05 (“ASU 2011-05”) “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income”. The revised guidance defer only those changes in Update 2011-05 that relate to the presentation of reclassification adjustments, the paragraphs in this Update supersede certain pending paragraphs in Update 2011-05. All other requirements in Update 2011-05 are not affected by this Update, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. The amendments in this Update are effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2011. The company is currently evaluating the impact on its consolidated financial statements of adopting this guidance.

Liquidity and Capital Resources

Our ongoing cash requirements include payments of our employees’ salaries and benefits, debt servicing costs, water resource fees, professional fees, office rentals and other operating costs and expenses. Our anticipated cash needs consist primarily of funding for future acquisitions, as well as operation and maintenance and possible capital expansion of our existing hydroelectric power projects.

We are a holding company and conduct substantially all of our business through our PRC operating subsidiaries. Currently, we do not expect these subsidiaries to pay dividends. However, in the future, we might rely on dividends paid by these subsidiaries for our cash needs, including the funds necessary to pay dividends and other cash distributions to our shareholders, to service any debt we may incur and to pay our operating costs and expenses. The payment of dividends by entities organized in the PRC is subject to limitations. Current PRC regulations permit our

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subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, our operating subsidiaries in the PRC are required to set aside a certain amount of after-tax profits each year, if any, to fund statutory reserves. These reserves and their paid-up capital are not distributable as cash dividends. As of December 31, 2011, a total of RMB3,416.8 million ($490.6 million) was not available for distribution to us in the form of dividends due to these PRC regulations.

As of December 31, 2011, we had a working capital deficiency of approximately $138.7 million. Due to our working capital deficiency, our independent registered public accountant has stated in its report dated April 27, 2012 with respect to our financial statements as of and for the year ended December 31, 2011 that these circumstances raise substantial doubt about our ability to continue as a going concern. We are currently seeking to raise funds through various means as described below. Our ability to continue as a going concern is dependent upon obtaining the necessary financing to meet our current and future liquidity needs.

Management has been closely monitoring our costs and intends to restrict such costs to those expenses that are essential to our operations. Management has been actively pursuing various means of securing additional financing, including assets sales, borrowings from banks and other financial and non-financial institutions and investments from private investors. In 2011, we raised additional working capital in the amount of approximately $10.0 million from the sale of common stock to Vicis Capital Master Fund. In the first quarter of 2012, we raised a total of $11.7 million through borrowings from banks and other non-financial institution. However, we cannot make any assurances that our cost reduction efforts will be effective or that any additional financing will be completed on a timely basis, on acceptable terms or at all. In the event that we fail to raise funds sufficient to meet our liquidity needs, we may be forced to substantially curtail our operations or otherwise take measures that would materially and adversely affect our business, results of operations and business prospects.

Our financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. Should the going concern assumption not be appropriate and we are not able to realize our assets and settle our liabilities, commitments and contingencies in the normal course of operations, adjustments would be required to our consolidated financial statements to the amounts and classifications of assets and liabilities, and these adjustments could be significant.

Our Consolidated Cash Flow

The following information details our consolidated cash flows from operating, investing and financing activities for the years ended December 31, 2009, 2010 and 2011.

The company doesn’t present cash flows from discontinued operations separately and believes that a quantification of the cash flows from discontinued operations is not necessary because such cash flows were of immaterial amount. The absence of cash flows from discontinued operations may have a marginally negative effect on future liquidity and capital resources.

We completed our acquisition of the remaining 10.0% interest in Banzhu in March 2009 and the acquisition of the remaining 50.0% equity interest in Shapulong in August 2009. We completed our acquisition of Ruiyang in August 2009, using proceeds from long term loans.

In 2010, we completed our acquisition of 79.0% equity interest in Wuyue in March, 100.0% equity interest in Husahe in April, Hengda in June, Xineng in August, Xiaopengzu in September, 100.0% equity interest in Jinling, together with Jinling’s 55.0% controlling interest in Jinlong, 74.0% controlling interest in Jintang and 74.0% controlling interest in Jinwei in December, using proceeds from our initial public offering and long term loans. Our long-term loans outstanding as of December 31, 2010 of $285.1 million related to RMB denominated loans of $18.6 million, $17.4 million, $13.5 million, $20.7 million, $29.5 million, $18.1 million, $9.5 million, $10.0 million, $12.5 million, $19.9 million, $10.7 million, $23.5 million, $40.6 million, $18.4 million, $1.5 million, $5.4 million, $5.7 million, $9.4 million obtained by Binglangjiang, Hengda, Xineng, Xiaopengzu, Wuliting, Yingchuan, Zhougongyuan, Shapulong, Ruiyang, Jiulongshan, Yuanping, Yuheng, Banzhu, Wangkeng, Jinling, Jinlong, Jintang and Jinwei, respectively. Our consolidated cash flows from our

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operating, investing and financing activities in the year ended December 31, 2010 reflect the proceeds we received from our initial public offering, and the short-term and long-term loans we obtained, the consideration we paid for acquisitions, and are affected by cash flows generated by the results of full year operations of Jiulongshan, Zhougongyuan, Binglangjiang II, Ruiyang and Shapulong hydroelectric power projects, and the operations of Husahe, Hengda, Xineng and Xiaopengzu hydroelectric power projects during our full ownership in addition to those generated by our Binglangjiang I, Liyuan, Yingchuan, Wuliting, Banzhu, Wangkeng, Yuanping and Yuheng hydroelectric power projects in the year ended December 31, 2010.

In 2011, we funded our acquisition of the remaining 10% equity interest in Wangkeng in January, as well as 100% equity interest in Dazhaihe in April with proceeds from our long term loans. Our long-term loans outstanding as of December 31, 2011 of $267.0 million related to RMB denominated loans of $14.9 million, $32.2 million, $14.0 million, $18.6 million, $25.5 million, $15.9 million, $8.9 million, $8.7 million, $11.1 million, $18.6 million, $24.3 million, $40.6 million, $16.3 million, $1.1 million, $5.1 million, $5.0 million and $6.2 million incurred by Binglangjiang, Hengda, Xineng, Xiaopengzu, Wuliting, Yingchuan, Zhougongyuan, Shapulong, Ruiyang, Jiulongshan, Yuheng, Banzhu, Wangkeng, Jinling, Jinlong, Jintang and Jinwei, respectively. In addition to cash flows generated from the operations of our power projects, consolidated cash flows in the year ended December 31, 2011 reflect the proceeds we received from the partial warrant exercise, by Vicis Capital Master Fund, the sale of Yuanping hydroelectric power projects and the short term and long-term loans we obtained, and the consideration we paid for acquisitions we made in 2011.

In 2009, cash and cash equivalents decreased by $7.1 million to $31.6 million, primarily due to $48.7 million used in investing activities partly offset by $40.5 million provided by financing activities and $1.2 million provided by operating activities. In 2010, cash and cash equivalents increased by $1.8 million to $33.5 million, primarily due to $103.6 million used in investing activities partly offset by $62.4 million provided by financing activities and $43.1 million provided by operating activities, and $0.1 million as effect of changes in exchange rate on cash and cash equivalent. In 2011, cash and cash equivalents decreased by $25.1 million to $8.4 million, primarily due to $24.7 million used in investing activities and $2.0 million used in financing activities and offset by $1.7 million provided by operating activities and $76 thousands due to changes in exchange rate on cash and cash equivalent.

The following table sets forth the components of our consolidated cash flows for the periods indicated:

	For the Year Ended December 31,
	2009			2010			2011
Net cash provided by operating activities		1,213			43,122			1,644
Net cash used in investing activities		(48,706	)		(103,606	)		(24,734	)
Net cash provided by (used in) financing activities		40,453			62,444			(2,041	)
Effect of changes in exchange rate on cash		(35	)		(121	)		76
Net increase (decrease) in cash and cash equivalents		(7,075	)		1,839			(25,055	)

Operating Activities

Net cash provided by operating activities was $1.6 million in 2011, which was primarily attributable to a net loss of $55.3 million, and the add-back of non-cash expenses, including depreciation expenses of $22.0 million, share-based compensation expenses of $10.5 million, assets impairment of $23.0 million, provision for impairment allowance of $2.0 million, deferred income taxes and loss from disposal of property, plant and equipment and others of $1.2 million. Also, an increase in account receivables of $0.2 million, and an increase in prepayments and other current assets of $0.3 million, a decrease in other non-current assets of $0.3 million, and a decrease in accrued expenses and other current liabilities of $1.9 million are factors contributing to the overall cash provided by operating activities for the year ended December 31, 2011.

Net cash provided by operating activities was $43.1 million in 2010, which was primarily attributable to a net gain of $4.0 million, and the add-back of non-cash expenses, including

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depreciation expenses of $15.8 million, share-based compensation expenses of $3.6 million. Also, an increase in account receivable of $5.4 million, and an increase in prepayments and other current assets of $3.7 million, a decrease in other non-current assets of $0.1 million, an increase in accounts payable of $0.7 million and an increase in accrued expenses and other current liabilities of $10.1 million are factors contributing to the overall cash provided by operating activities for the year ended December 31, 2010.

Net cash provided by operating activities was $1.2 million in 2009, which was primarily attributable to a net loss of $19.4 million, and the add-back of non-cash expenses, including depreciation expenses of $11.6 million, change in fair value of derivative financial liabilities of $13.8 million. Also, a decrease of account receivable of $3.7 million and a decrease in accrued expenses and other current liabilities of $4.3 million are factors contributing to the overall cash provided by operating activities for the year ended December 31, 2009.

Investing Activities

Net cash used in investing activities was $24.7 million in the year ended December 31, 2011, relating principally to purchase consideration of $19.3 million in relation to the acquisition of Dazhaihe, cash deposit for potential acquisition of $0.7 million, construction payments to contractors of $3.3 million, purchase of property, plant and equipment and intangible assets of $1.5 million and proceeds from disposal of property, plant and equipment of $0.1 million.

Net cash used in investing activities was $103.6 million in the year ended December 31, 2010, relating principally to purchase consideration of $43.2 million in relation to the acquisition of subsidiaries including Wuyue, Husahe, Hengda, Xineng, Xiaopengzu, Jinling, Jintang, Jinlong and Jinwei, cash advancement to an acquired business prior to the acquisition date of $43.5 million, cash deposit for potential acquisition of $9.5 million, construction payments to contractors of $4.2 million, purchase of property, plant and equipment of $2.9 million and acquisition of land use rights of $0.2 million.

Net cash used in investing activities was $48.7 million in the year ended December 31, 2009, relating principally to purchase consideration of $32.3 million in relation to the acquisition of Ruiyang, Shapulong and Banzhu, construction payments to contractors of $13.4 million, loans to Shapulong of $3.9 million, purchase of property, plant and equipment of $1.8 million and acquisition of an intangible asset of $1.0 million, partially offset by the repayment of loans by Shapulong of $3.5 million.

Financing Activities

Net cash used in financing activities was $2.0 million in the year ended December 31, 2011, resulting from proceeds of $45.8 million from long-term loans, $23.1 million from short-term loans, related party of $1.3 million, $10.0 million received from the partial warrant exercise by Vicis Capital Master Fund, and other loans of $17.5, repayment of long-term loans of $67.0 million, short-term loans of $20.9 million, other loans of $10.6 million and a purchase of subsidiary shares from noncontrolling interests of $1.2 million.

Our long-term loans outstanding as of December 31, 2011 of $267.0 million related to RMB denominated loans of $14.9 million, $32.2 million, $14.0 million, $18.6 million, $25.5 million, $15.9 million, $8.9 million, $8.7 million, $11.1 million, $18.6 million, $24.3 million, $40.6 million, $16.3 million, $1.1 million, $5.1 million, $5.0 million and $6.2 million incurred by Binglangjiang, Hengda, Xineng, Xiaopengzu, Wuliting, Yingchuan, Zhougongyuan, Shapulong, Ruiyang, Jiulongshan, Yuheng, Banzhu, Wangkeng, Jinling, Jinlong, Jintang, and Jinwei, respectively. The long-term loans are secured by pledges of the property, plant and equipment and future electricity sales of the respective entities and/or guaranteed by third parties and with principal repayment date between 2011 and 2027. The interest rates on these long-term loans are variable based on the benchmark rate published by the People’s Bank of China each year. The average interest rates on the short-term and long-term loans for 2011 were 10.83% and 7.00%, respectively.

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Net cash provided by financing activities was $62.4 million in the year ended December 31, 2010, resulting from proceeds of $23.8 million from long-term loans, proceeds of $8.3 million from short-term loans, proceeds of loans from related party of $2.2 million, and net proceed of $96.0 million received from initial public offering, partially offset by Payment of deferred initial public offering costs of $10.0 million, repayment of long-term loans of $50.7 million, repayment of short-term loans of $7.2 million.

Our long-term loans outstanding as of December 31, 2010 of $285.1 million related to RMB denominated loans of $18.6 million, $17.4 million, $13.5 million, $20.7 million, $29.5 million, $18.1 million, $9.5 million, $10.0 million, $12.5 million, $19.9 million, $10.7 million, $23.5 million, $40.6 million, $18.4 million, $1.5 million, $5.4 million, $5.7 million, $9.4 million obtained by Binglangjiang, Hengda, Xineng, Xiaopengzu, Wuliting, Yingchuan, Zhougongyuan, Shapulong, Ruiyang, Jiulongshan, Yuanping, Yuheng, Banzhu, Wangkeng, Jinling, Jinlong, Jintang and Jinwei, respectively. The long-term loans are secured by pledges of the property, plant and equipment and future electricity sales of the respective entities or guaranteed by third parties and are due between 2011 and 2027. The interest rates on these long-term loans are variable based on the benchmark rate published by the People’s Bank of China each year. The average interest rate on the short-term and long-term loans for the 2010 was 6.16% and 6.26%, respectively.

Net cash provided by financing activities was $40.5 million in the year ended December 31, 2009, resulting from proceeds of $129.2 million from long-term loans and proceeds of $4.4 million from short-term loans, proceeds of $20.0 million from the issuance of Series C convertible redeemable preferred shares, partially offset by repayment of long-term loans of $95.3 million, repayment of short-term loans of $6.1 million, payment of deferred initial public offering costs of $7.1 million, and payment of Series C convertible redeemable preferred shares issuance costs of $1.9 million.

Our long-term loans outstanding as of December 31, 2009 of $229.3 million related to RMB denominated loans of $42.9 million, $21.2 million, $14.6 million, $31.8 million,$10.7 million, $41.3 million, $20.5 million, $20.9 million, $14.1 million and $11.3 million obtained by Wuliting, Yingchuan, Binglangjiang, Jiulongshan,Yuanping, Banzhu, Wangkeng, Yuheng, Ruiyang and Shapulong, The long-term loans are secured by pledges of the property, plant and equipment and future electricity sales of the respective entity or guaranteed by third parties and are due between 2010 and 2020. The interest rates on these long-term loans are variable based on the market rate published by the People’s Bank of China each year. The average interest rate on the long-term loans for the 2009 was 6.16%.

Capital Expenditures

In the year ended December 31, 2009, we incurred capital expenditures of $13.0 million consisting primarily of capital expenditures of $7.7 million, $1.6 million, $1.8 million and $1.7 million for the construction of the Binglangjiang II, Liyuan, Zhougongyuan and Banzhu hydroelectric power projects, respectively. In the year ended December 31, 2010, we incurred capital expenditures of $3.4 million consisting primarily of capital expenditures of $0.7 million, $0.6 million, and $1.4 million for the construction of the Binglangjiang II, Liyuan and Wuyue hydroelectric power projects, respectively. In the year ended December 31, 2011, we incurred capital expenditures of $7.5 million consisting primarily of capital expenditures of $1.5 million, $1.1 million, and $2.9 million for the construction of the Binglangjiang II, Liyuan and Zhougongyuan, respectively. We will in the future make significant capital expenditures to develop, expand and complete the construction of additional small hydropower assets and our pumped storage hydroelectric power project. We generally deposit our excess cash in interest-bearing bank accounts in banks in China, Hong Kong and the United States of America.

Although in the first quarter of 2012 we saw favorable rainfall in most of our catchment areas, producing excellent runoff and a high level of reservoir storage at many of our projects, we still need additional cash from sources other than tariffs required to meet our expected cash requirements, including for working capital and capital expenditure purposes, for at least the next 12 months. We may seek to sell additional assets which have a ready market and interested buyers in

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the market, equity securities, debt securities or borrow from lending institutions. We cannot assure you that financing will be available in the amounts we need or on terms acceptable to us, if at all. The sale of additional equity securities, including convertible debt securities, would dilute our shareholders’ interests. The incurrence of debt would divert cash for working capital and capital expenditures to servicing debt obligations and could result in operating and financial covenants that restrict our operations and our ability to pay dividends to our shareholders. If we are unable to obtain additional equity or debt financing as required, our business operations and prospects may be adversely affected. See “Risk Factors—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.”

C. Research and Development

Not applicable.

D. Trend Information

Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the year ended December 31, 2011 that are reasonably likely to have a material adverse effect on our revenues, income, profitability, liquidity or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.

E. Off-Balance Sheet Arrangements

We have not entered into any material outstanding financial guarantees or other commitments to guarantee the payment of obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholders’ equity, or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

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F. Tabular Disclosure of Contractual Obligations

The following table sets forth our contractual obligations as of December 31, 2009:

	Payment Due by Period
	Total			Within 1 Year			1-3 Years			3-5 Years			More than 5 Years
	(unaudited) ($ in thousands)
Short-term borrowings(1)		$	7,098		$	7,098		$	—		$	—		$	—
Interest on short-term borrowings(1)			96			96			—			—			—
Long-term borrowings (including current portion of long-term borrowings)(1)			229,278			56,809			48,270			50,877			73,322
Interest on long-term borrowings (including interest on current portion of long-term borrowings)(1)			53,076			13,422			18,503			12,356			8,795
Operating lease commitments			528			451			75			2			—
Purchase obligations(2)			157			157			—			—			—
Total		$	290,233		$	78,033		$	66,848		$	63,235		$	82,117

(1)	See Note 14 to our audited consolidated financial statements, which are included elsewhere in this annual report, for a discussion of our short-term and long-term borrowings.
(2)	This represents contracted but unpaid amounts for construction projects of Binglangjiang and Liyuan that are in progress and for the purchase of property, plant and equipment of Yuheng.

The following table sets forth our contractual obligations as of December 31, 2010:

	Payment Due by Period
	Total			Within 1 Year			1-3 Years			3-5 Years			More than 5 Years
	(unaudited) ($ in thousands)
Short-term borrowings(1)		$	17,742		$	17,742		$	—		$	—		$	—
Interest on short-term borrowings(1)			233			233			—			—			—
Long-term borrowings (including current portion of long-term borrowings)(1)			285,095			60,798			69,473			66,393			88,431
Interest on long-term borrowings (including interest on current portion of long-term borrowings)(1)			87,856			17,594			28,046			18,877			23,339
Operating lease commitments			1,664			784			880			—			—
Purchase obligations(2)			21,812			21,812			—			—			—
Total		$	414,402		$	118,963		$	98,399		$	85,270		$	111,770

(1)	See Note 14 to our audited consolidated financial statements, which are included elsewhere in this annual report, for a discussion of our short-term and long-term borrowings.
(2)	This represents contracted but unpaid amounts for construction projects or for the purchase of property, plant, and equipment of Binglangjiang, Husahe, Yuheng and Wuyue.

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The following table sets forth our contractual obligations as of December 31, 2011:

	Payment Due by Period
	Total			Within 1 Year			1-3 Years			3-5 Years			More than 5 Years
	(unaudited) ($ in thousands)
Short-term borrowings(1)		$	20,881		$	20,881		$	—		$	—		$	—
Interest on short-term borrowings(1)			1,368			1,368			—			—			—
Long-term borrowings (including current portion of long-term borrowings)(1)			267,033			51,651			73,704			63,419			78,259
Interest on long-term borrowings (including interest on current portion of long-term borrowings)(1)			78,265			17,107			26,161			16,425			18,572
Operating lease commitment			823			478			345			—			—
Other commitments(3)			4,603			141			434			432			3,596
Purchase obligations(2)			2,841			1,817			941			83			—
Total		$	375,814		$	93,443		$	101,585		$	80,359		$	100,427

(1)	See Note 14 to our audited consolidated financial statements, which are included elsewhere in this annual report, for a discussion of our short-term and long-term borrowings.
(2)	This represents contracted but unpaid amounts for construction projects of Liyuan that are in progress and for the purchase of property, plant and equipment of Dazhaihe, Yingchuan, Ruiyang, Zhougongyuan, Jinwei and Jintang.
(3)	This represents the compensation agreements signed with certain land owners in the Fujian Province, the PRC, who lost the usage of their land due to the operation of our hydroelectric power projects in the areas.

IITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. Directors and Senior Management

The following table sets forth information regarding our directors and executive officers.

Name	Age		Position/Title
John D. Kuhns		61	Chairman, Chief Executive Officer
Dr. Yong Cao		57	Director
Anthony H. Dixon		50	Director
Richard H. Hochman		66	Director
Dr. You-Su Lin		58	Director, Chairman of Beijing A.B.C. Investment
Shadron Lee Stastney		42	Director
Stephen Outerbridge		61	Director
“James” Tie Li		43	President
Mary E. Fellows		50	Executive Vice President and Corporate Secretary
Liya Chen		39	Chief Financial Officer
John Donahue		62	Vice President of Investor Relations
Yongge Tracy Tang		40	Assistant Chief Financial Officer
Wu Gan		55	Vice Chairman of Beijing A.B.C. Investment
Huakang Xiong		56	General Manager of Yunnan and Senior Operating Officer of Beijing A.B.C Investment
Hong Zhang		50	General Manager of Fujian
Jianbin Zhou		42	General Manager of Zhejiang
Tara Li		30	Senior Manager of Internal Control
Jiang Feng		32	Financial Controller

Unless otherwise indicated, the business address of each director and executive officer is c/o Bldg A#2105, Ping’An International Financial Center, No.3 Xinyuan South Road, Chao Yang District, Beijing, PRC 100027.

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A description of the business experience and present position of each director and executive officer is provided below:

Directors

Mr. John D. Kuhns has served as our Chief Executive Officer since our inception in 2006 and our chairman since May 2007. Mr. Kuhns is currently the chairman, Chief Executive Officer and a member of the board of directors of Kuhns Brothers & Co., Inc., Kuhns Brothers Securities Corporation, China Silicon Corporation, China Natural Energy Corporation, China Electrode Corporation, China Board Mill Corporation and Master Silicon Carbide Industries, Inc. Mr. Kuhns is also a member of the board of directors of Kuhns Brothers, Inc., Kuhns Brothers Capital Management, Inc., Kuhns Brothers Advisors, Inc., Kuhns Brothers Enterprises Corporation, China New Energy Group Company, White Hollow Farms, Inc., White Hollow Vineyards, Inc., Lime Rock Ventures, Inc., Watch Hill Farms, Inc., Corona Equities, Inc., Global Photonics Energy Corporation, Craton Equity Partners and China Hand Advisors, Inc., and the Chairman of Project Midway, Inc., a not for profit organization. Mr. Kuhns has over 30 years of experience in the hydroelectric power, power technology and alternative energy industry and has been involved with hydroelectricity in China since 1984. From 1981 to 1988, Mr. Kuhns built Catalyst Energy, one of the first publicly traded independent power producers in the United States, as the company’s founder, President and Chief Executive Officer. While running Catalyst Energy, he acquired Chinese hydroelectric generating equipment for use in the United States. He furthered his development experience in China as Chairman and Chief Executive Officer at the New World Power Corporation from 1992 to 1996, where he developed and financed hydroelectric projects in China as well as Argentina, Costa Rica and Mexico. While at New World Power, he formed a joint venture with Wuhan Steam Turbine, a state-owned enterprise owned by the City of Wuhan in China, to develop hydroelectric projects in Asia, including the PRC. Mr. Kuhns has additional transaction experience in China as a controlling shareholder, President, CEO, a director and Chairman of Kuhns Brothers, Inc., an investment banking firm which he founded in 1986 specializing in providing financing for power technology ventures, and, more recently, industrial and infrastructure companies operating within the PRC. Mr. Kuhns received a Bachelor of Arts degree in Sociology and in Fine Arts from Georgetown University, a Master of Fine Arts degree from the University of Chicago, and a Master of Business Administration degree from the Harvard Business School.

Dr. Yong Cao has been a director of our company since August 2008. Dr. Cao is currently a senior fellow of Finance and Economics at Nanyang Technological University in Singapore, which he has been working with since 1993, and a professor of Economics of Nanjing University in China. He also serves as an independent director to Reyphon Agricultural Limited, a listed company on the Singapore Stock Exchange. Dr. Cao received his bachelor’s degree in Economics from Sichuan University, a master’s degree in Economics from the Postgraduate School of the Chinese Academy of Social Sciences and a Ph.D. in Development Economics from the Australian National University.

Mr. Anthony H. Dixon has been a director of our company since August 2008. Mr. Dixon is currently the Chief Executive Officer of ASB Biodiesel (Hong Kong) Ltd., a developer of biodiesel plants utilizing waste oils and fats as feedstock. He is also a member of the Investment Committee and the Board of Advisors of Geo Investors Renewable Infrastructure Fund I, LP (“GIRIF”), a Delaware limited partnership which invests in the debt of renewable energy projects, primarily in the US. From 2007 to 2010 he was an independent corporate financial advisor to renewable energy and clean tech companies primarily in the UK, Europe and Asia. From October 2007 to December 2008 Mr. Dixon was the finance director and chief operating officer of ZED factory Ltd., a designer and developer of zero carbon housing in the United Kingdom. Prior to which he worked for Hines Associates, a corporate financial advisory boutique. From 2002 to 2006, Mr. Dixon was a managing director with Citigroup Global Markets, London. From 1997 to 2002, Mr. Dixon was head of Asian Securitization for Salomon Smith Barney in Hong Kong and then head of Securitization for Nikko Salomon Smith Barney in Tokyo. From 1992 to 1997, Mr. Dixon was a vice president with Salomon Brothers in New York. Mr. Dixon was a member of the board of the Solar Electric Light Corporation from 1998 to 2011 and chairman from 2002 to 2011. He received a Master of Science in Sustainable Energy Futures with distinction from Imperial College, London, a Master of Business

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Administration from the Harvard Business School, a Bachelor of Science with first class honors in Physics and a Bachelor of Arts degree in Philosophy from the University of Western Australia.

Mr. Richard H. Hochman has been a director of our company since August 2006. Mr. Hochman is currently the chairman of RHH Capital Consulting, Inc., a private investment firm. Mr. Hochman has been an adviser to Regent Capital Equity Partners, L.P., a private investment firm making equity and mezzanine investments, since April 1995. Mr. Hochman was also the chairman of Regent Management Corporation from April 1995 to December 2009. He was a managing director in PaineWebber’s Investment Banking Group from 1990 to 1995. Prior to joining PaineWebber, Mr. Hochman was a managing director for Drexel Burnham Lambert, Inc. from 1984 to 1990. He worked in E.F. Hutton’s Corporate Finance Department from 1969 to 1984 and was promoted as a senior vice president in 1979. Mr. Hochman is a member of the board of directors of DCI Investment, Santa Monica Amusements LLC and Forefield, Inc. Mr. Hochman received his Master of Business Administration degree from the Harvard Business School and his Bachelor of Arts degree with honors from the Johns Hopkins University.

Dr. You-Su Lin has been a director of our company since August 2008 and has been chairman of Beijing A.B.C. Investment since 2007. Dr. Lin is the chairman of the board of Beijing A.B.C. Investment. Dr. Lin has been the chairman of Greenstone Investment Ltd. since 2004 and he has also been the chairman of China Board Mill Corporation since August 2008. He serves as a member of the board of directors of China Silicon Corporation, Master Silicon Carbide Industries, Inc. and China Natural Energy. Dr. Lin was a chief consultant for Beijing Urban Construction Group Co., Ltd. in charge of the construction of 2008 Olympic venues from 2002 to 2004. Dr. Lin received his Ph.D. in the Arts and master’s degree in the Arts from Australian National University and his bachelor’s degree in the Arts from Beijing Foreign Language University.

Mr. Shadron Lee Stastney has been a director of our company since May 2007. Mr. Stastney is the Chairman of Care Media and a member of the board of directors of China Board Mill Corporation, China Silicon Corporation, China New Energy Group Company, China Natural Energy Corporation, Quality Health Plans, MDwerks, the Amacore Group, Inc., Master Silicon Carbide Industries, Inc. and Ambient Corporation. Since June 2004, Mr. Stastney has been a partner at Vicis Capital, LLC, which is an investment management firm and the managing partner of one of our principal shareholders, Vicis Capital Master Fund. From September 2001 to February 2004, Mr. Stastney was a partner of Vicis Capital Management, an investment management firm. Mr. Stastney received his Bachelor of Arts degree from the University of North Dakota and a Juris Doctor degree from the Yale Law School.

Mr. Stephen Outerbridge has been a director of our company since August 2008. Mr. Outerbridge is currently a director of Emerging Markets, Latin America and Asia and of Smith Bermuda and World on Wireless. From May 2003 to September 2004, he was the chief union officer of XL Re Latin America. He was subsequently promoted and took on the roles of president and Chief Operating Officer, in addition to chief union officer. Mr. Outerbridge has been working with XL Capital for the last eleven years. Mr. Outerbridge received his Bachelor of Arts degree from Tufts University.

Officers

Mr. ”James” Tie Li has been our President since January 2011, and our executive vice president from May 2007 to December 2010. He has been a consultant to Kuhns Brothers, Inc. since 2006. Mr. Li is a member of the board of directors of Master Silicon Carbide Industries, Inc., China New Energy, Inc. and all of our subsidiaries. He is the founder and part-time president of Columbia China Capital Group, Inc. incorporated in 2002, a U.S.-based boutique investment firm advising Asian firms in mergers and acquisitions. From 1998 to 2001, Mr. Li was an investment banker with Citigroup Global Markets Inc. in New York. From 2001 to 2005, Mr. Li was the portfolio manager with Hypo Vereins Bank, managing a $1 billion high yield portfolio. From 2005 to 2007, Mr. Li was a senior credit analyst with Standard & Poor’s in New York. Mr. Li received his bachelor’s degree in Accounting from City University of New York and his master’s degree in Business Administration

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from the Columbia University Graduate School of Business. He is a CFA Charter holder and was a Certified Public Accountant licensed in the State of New Jersey.

Ms. Mary E. Fellows has been our Corporate Secretary since our inception in 2006. our Executive Vice President since May 2007 and our Chief Compliance Officer since January 2010. Ms. Fellows has been a partner and executive vice president of Kuhns Brothers, Inc., an investment boutique, since 1997. She is the president of Project Midway, Inc., a not for profit organization. She is an executive vice president, secretary and a member of the board of directors of Kuhns Brothers & Co., Inc. and Kuhns Brothers Securities Corporation, China Natural Energy Corporation, China Silicon Corporation, China Electrode Corporation, China Board Mill Corporation, Kuhns Brothers Enterprises Corporation and Master Silicon Carbide Industries, Inc. She is also a member of the board of directors of Lime Rock, LLC., Kuhns Brothers Advisors, Inc., Kuhns Brothers Capital Management Inc., and China New Energy Group Company. From 2003 to 2006, she was a director of GenSelf Corporation. From 1997 to 2002, she was a corporate secretary of the Solar Electric Light Company. From 1996 to 1999, she was a director of Corporate Administration and corporate secretary of the New World Power Corporation. Ms. Fellows received her bachelor’s degree in Science from Teikyo Post University.

Ms. Liya Chen joined our company in August 2011 and has been appointed the CFO since then. Prior to joining the company, Ms. Chen was a Financial Controller for Pharmaron (Beijing) New Drugs Technology Company Ltd. From 2003 to 2010, she was an audit manager in the Energy and Utility Assurance Service Group of PricewaterhouseCoopers. Ms. Chen started her career in PwC’s Canada firm as an associate and worked there for over three years. Ms. Chen is a Canadian Chartered Accountant (CICA) and HKCPA. Ms. Chen received her Master of Accountancy degree from Brock University, Canada in 2003.

Mr. John Donahue assumed the position of our Vice President of Investor Relations in April 2011. Over a 25-year period, Mr. Donahue served in a number of senior financial management positions in public and private companies, most of which were a high growth, acquisition-oriented companies. Mr. Donahue served as Vice President and Chief Financial Officer Encompass Group Affiliates, Inc., the largest U.S. distributor of replacement parts for consumer electronic products, from September 2006 until April 2011, and, prior to that, he served as Vice President and Chief Financial Officer of Online Benefits Inc. a private-equity owned HR solutions software development firm from August 1999 until it was sold in September 2006. Previous to that Mr. Donahue served as Managing Director of Oxbridge Incorporated, a boutique investment banking firm, and as Chief Financial Officer at Mast Resources Inc., a merchant bank. From 1986 through 1989 he served as Vice President and Chief Financial Officer of Catalyst Energy Corp, a NYSE-listed independent power producer founded by John D. Kuhns, our Chief Executive Officer, Chairman and founder. Prior to a period with Tyco International from 1985 to 1986, principally involving acquisition-oriented responsibilities, Mr. Donahue was with Price Waterhouse from 1972 to 1985, including serving as a Senior Audit Manager on the audit examination of three Fortune 500 companies, and a tour of duty in the firm’s National Office. Mr. Donahue received a Bachelor of Arts degree in Economics from Holy Cross College and a Master of Business Administration degree from Rutgers University.

Ms. Yongge Tracy Tang joined our company as the Assistant Chief Financial officer in June 2008. Prior to joining our company, Ms. Tang was an internal audit manager for Volt Information Science. Prior to that, she also worked as a controller for Thomas Services Canada. She received her master in business administration at University of Toronto and her master in Economics at Lakehead University, Canada. She is a Charter holder for Certified Financial Analyst and a Certified Public Accountant licensed in Colorado State.

Mr. Wu Gan has been the vice chairman of Beijing A.B.C. Investment since January 2011 and was the general manager of Beijing A.B.C. Investment from July 2008 to December 2010. Mr. Gan was the director of the general office of the State Supervision Work Committee of the Communist Party of China from 2002 to 2008. Mr. Gan received his bachelor’s degree in Engineering from the Yellow River Water Conservancy and Hydroelectric Technology School and his master’s degree in Economics from Harbin Institute of Technology.

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Mr. Huakang Xiong has been appointed as the regional general manager of Yunnan and senior operating officer of Beijing A.B.C Investment recently. Mr. Xiong joined our company as operating officer in May, 2009. Prior to joining our company, he was a senior engineer at Hubei Qingjiang Hydroelectric Development Co., Ltd. from 1990 to 2009. He is also a part-time professor at Huazhong University of Science and Technology and Three Gorges University. Mr. Xiong received his bachelor’s degree in Hydrology from Sichuan University and his master’s degree in applied computer science from Huazhong University of Science and Technology.

Mr. Hong Zhang has been appointed as our regional general manager of Fujian recently. Mr. Zhang joined our company as Chief Operating Officer in 2008. Prior to joining our company, Mr. Zhang was a senior engineer at the Yellow River Committee of the Ministry of Water Resources from 1983 to 2008. Mr. Zhang also worked in Zhengzhou Power Generating Equipment Plant from 1983 to 1991. Mr. Zhang received his bachelor’s degree in electrical technology from Xi’an Jiaotong University.

Mr. Jianbin Zhou has been our regional general manager of Zhejiang since 2011. Prior to joining our company, Mr. Zhou was the chairman of Yunnan Huabang Hydroelectric Development Co., Ltd. from 2004 to 2007. He was vice general manger of Yunnan Dehong Prefecture Hydroelectric Development Co., Ltd. in 2003, and vice general manger of Junxi Hydroelectric Development Co., Ltd. from 2001 to 2003. He also served as general manger of Dazhai, Ruixiang and Longxi Power Plant from 1995 to 2000. Mr. Zhou received his associate degree in electromechanical science from Fuchunjiang Hydroelectric Institute.

Ms. “Tara” Qiufang Li joined our company as the Senior Manager of Internal Control in September 2011. Prior to joining our company, Ms. Li was a manager in Business Risk Service Group of Ernst & Young (China) Advisory Ltd. from 2006 to August 2011, focusing on, among other things, SOX 404 compliance, enterprise risk management, internal control review and internal audit, and before that she was a senior auditor at PricewaterhouseCoopers from 2004 to 2006. She received her bachelor’s degree in Economics from Renmin University of China. She is also a member of CICPA and CIA.

Mr. Feng Jiang joined our company in June 2011 and has been our financial controller since then. Prior to joining our company, Mr. Jiang was a manager in the Energy and Utility Assurance Service Group of PricewaterhouseCoopers and had been with PwC for 6 years. Mr. Jiang is a Certified Public Accountant of PRC. Mr. Jiang received his master’s degree from Jilin University in 2005.

Our Key Consultant

Mr. Michael H. Best is an independent engineering consultant and technical project manager. Mr. Best has served as a director of Advanced Power Systems International, Inc. since 2000. Mr. Best received his bachelor’s degree in Engineering from Columbia University.

B. Compensation

Compensation of Directors and Executive Officers

The aggregate cash compensation that we paid to our directors and executive officers included in the list under the heading “—Directors and Executive Officers” for the years ended December 31, 2009, 2010 and 2011 was $2.7 million, $4.9 million, and $3.6 million respectively. From 2009 to 2010, the Company established 401(k) safe harbor plan, which requires a dollar by dollar matching contribution from the employer up to 3% of the employee’s eligible annual salary. In 2010, the Company introduced 401 (k) profit sharing plan, which allows the company to contribute up to 25% of the employees’ eligible annual salary. For the year ended December 31, 2009, 2010 and 2011, the Company contributed $0.03 million, $0.08 million and $0.2 million respectively to our 401(k) retirement plan. In 2010, our Company established a defined benefit plan for certain executives, which is a type of pension plan in which we promise a specified monthly benefit on retirement for certain executives that is predetermined by a formula based on the employee’s earnings history, tenure of service, age, and present value factor. For the year ended December 31, 2009, 2010 and

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2011, the Company contributed nil, nil and $0.06 million to the defined benefit plan. For share-based compensation, see “—2008 Share Incentive Plan.”

2008 Share Incentive Plan

The China Hydroelectric Corporation 2008 Share Incentive Plan, or the 2008 Plan, allows our company to grant options, share appreciation rights, share awards, phantom awards and other equity-based or cash-based awards to employees, consultants, and other individuals providing services to our company, including our directors. The maximum aggregate number of ordinary shares that may be issued under the 2008 Plan is 12,000,000 ordinary shares. The purpose of the 2008 Plan is to promote long-term growth and profitability of our company by (i) providing key people with incentives to improve shareholder value and to contribute to the growth and financial success of our company through their future services, and (ii) enabling our company to attract, retain and reward the best-available persons.

The 2008 Plan administrator, which may be our board of directors or its authorized designee, has full power and authority to administer, construe and interpret the 2008 Plan. Grants under the 2008 Plan will be governed by individualized grant agreements and stock restriction agreements and may be subject to either time-based or performance-based vesting provisions. Separate form grant agreements have been drafted for employees in China to comply with certain registration, reporting and tax rules.

The only awards that have been granted pursuant to the 2008 Share Incentive Plan are stock options.

Share Options. The exercise price of incentive share options must be at least equal to the fair market value of our ordinary shares on the date of grant. However, the exercise price of all other options may be as determined by the administrator. The term of an incentive stock option may not exceed ten years from the date the 2008 Plan is adopted by our board of directors or the date that is approved by the shareholders. The administrator determines the term of all other options. After termination of an employee, director or consultant, he or she may exercise his or her options for the period of time stated in the option agreement. Generally, if termination is due to death or disability, the option will remain exercisable for twelve months. In all other cases, the option will generally remain exercisable for thirty days. However, an option generally may not be exercised later than the expiration of its term. We grant awards with exercise prices at or above fair market value. In pricing awards under the plan, the administrator has considered the share purchase price negotiated with independent third parties in recently completed equity financings, as well as the progress of the company in developing its business since the time of those financings.

Share Appreciation Rights. Share appreciation rights allow the recipient to receive the appreciation in the fair market value of our ordinary shares between the date of grant and the exercise date. The exercise price of share appreciation rights granted under our plan may be as determined by the administrator.

Share Awards. Share awards relate to the grant of restricted or unrestricted share awards to eligible participants in such amounts, on such terms and conditions, and for such consideration, including no consideration or such minimum consideration as may be required by law as the administrator may from time to time determine.

Phantom Shares. Phantom shares are share-equivalent units granted to a participant that is credited to a bookkeeping reserve account solely for SEC reporting purposes and shall not require a segregation of any of our assets. Such shares are granted from time to time as the administrator may determine.

Amendment and Termination. Our 2008 Plan will automatically terminate in 2018, unless we terminate it sooner. Our board of directors has the authority to amend, alter, suspend or terminate the 2008 Plan.

Our board of directors granted stock options to purchase 3,897,000 ordinary shares in August 2008, of which the options granted to one employee to purchase 5,000 ordinary shares expired as the employee terminated his services to us before the option became exercisable, stock options to

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purchase 35,000 ordinary shares in January 2009 and subsequently stock options to purchase 7,000,000 ordinary shares in December 2009 under the 2008 Plan to our executive officers, directors, employees and consultants. The options granted in December 2008 and January 2009 to our executive officers, employees and consultants have an exercise price of $7.70 per share and will vest in a three-year period, with one-third vesting each year, and a term of five years. The options granted in December 2009 have an exercise price equal to the price of the ordinary shares underlying the ADSs sold in the IPO and will vest in a four-year period, with one-fourth vesting each year, and a term of five years. The 40,000 options granted to our non-executive directors, Richard H. Hochman and Shadron Lee Stastney, and two non-executive directors who have resigned from our board, Robert W. MacDonald and Dennis Galgano, have an exercise price of $7.70 per share, and will vest, or did vest, 100% on the first anniversary of the grant date or upon the resignation or removal of such director from our board.

In December 2011, the board authorized a stock option exchange program, under which (i) employees would be given the option to voluntarily forfeit their existing stock options, (ii) any cancelled shares resulting from stock options forfeited would be added back to the option share pool to be used to make future grants, (iii) new stock options would be granted to deliver the same current expected value as the forfeited option grants, but at a reduced exercise price of $0.46 per option share (which was the equivalent to one third of the 25 day trailing average closing price of the Company’s ADSs as of the close of business on December 21, 2011), which reduced exercise price shall in no event be less than the fair market value on the date of the grant; and (iv) the new options issued under the exchange program would expire on the fifth anniversary of the grant, (v) the new options should become exercisable immediately upon grant; and (vi) the 40,000 options granted to our non-executive directors and 50,000 options granted to a former consultant were excluded on this exchange program.

The following table sets forth information on share options that have been granted and are outstanding as of the date of this annual report under the 2008 Share Incentive Plan, reflecting the participation of the stock option exchange program described above by certain of our employees:

Name	Ordinary Shares Underlying Outstanding Options		Exercise Price ($/Share)		Grant Date	Expiration Date
John D. Kuhns		152,695		0.46	December 28, 2011	December 28, 2016
“James” Tie Li		64,192		0.46	December 28, 2011	December 28, 2016
Mary E. Fellows		64,192		0.46	December 28, 2011	December 28, 2016
Dr. You-Su Lin		101,507		0.46	December 28, 2011	December 28, 2016
Richard H. Hochman		10,000		7.70	August 18, 2008	August 18, 2013
Shadron Lee Stastney		10,000		7.70	August 18, 2008	August 18, 2013
Other employees and consultants as a group		34,370		0.46	December 28, 2011	December 28, 2016
Former consultant		50,000		7.70	August 18, 2008	August 18, 2013
Former directors		20,000		7.70	August 18, 2008	August 18, 2013
Total		506,956

Compensation Expenses Relating to Stock Option Grants

The administrator, which is the board of directors or its authorized designee, has full power and authority to administer, construe and interpret the 2008 Plan. Under the terms of the 2008 Plan, incentive stock options must be granted at exercise prices at least equal to the fair market value on the date of grant. On August 18, 2008, the board of directors approved the grant of 40,000, 260,000 and 3,597,000 non-qualified stock options to certain directors, non-employees and employees, respectively, at an exercise price of $7.70 per share. On January 20, 2009, our board of directors approved the grant of 35,000 non-qualified stock options to certain employees at an exercise price of $7.70 per share. On March 4, 2009, the board of directors passed a resolution to modify the 2008 Plan such that the 2008 Plan could be made effective without approval by our shareholders. In accordance with ASC sub- topic 718-10, Compensation—Stock Compensation: Overall, the grant date

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for the share-based awards issued on August 18, 2008 and January 20, 2009 was March 4, 2009. Accordingly, no compensation expense was recognized for the year ended December 31, 2008. We recognized compensation expense of $0.6 million for the year ended December 31, 2009. See Note 25 to our audited consolidated financial statements included elsewhere in this annual report.

On December 3, 2009, our board of directors approved the grant of 7,000,000 share options to certain of directors, officers and employees at an exercise price equal to the price at which the ordinary shares underlying the ADSs are sold in the IPO of the Company; provided that the options shall expire in the event that the Company does not consummate its initial public offering within six months of the approval date. Since the exercise price was not known until the initial public offering was priced on January 25, 2010, the accounting grant date for the share-based awards issued on December 3, 2009 was not established as of December 31, 2009. As such, no compensation expense related to the December 3, 2009 grant was recognized in 2009.

On December 22, 2011, the board of directors approved a stock option for stock option exchange program for the employees and consultants who were holding options, at a reduced exercise price of $0.46 per share and vested immediately on December 28, 2011. As such, the remaining option expenses of $6.8 million for the existing options were expensed immediately at the time of the exchange. See Note 25 to our audited consolidated financial statements included elsewhere in this annual report.

Employment Agreements with Executive Officers

We have entered into employment agreements with each of our executive officers.

Under the agreements with John D. Kuhns, “James” Tie Li, Mary E. Fellows, Dr. You-Su Lin and Wu Gan, we may terminate an executive officer’s employment for cause, with thirty days’ advance written notice and an opportunity to cure, for certain acts of such officer including but not limited to a conviction of a felony or crime involving moral turpitude, willful failure to perform the officer’s responsibilities in the best interests of the Company, or breach of any provision of any employment, non-disclosure, non-competition, non-solicitation or other similar agreement executed by the officer for the benefit of the Company. In such case, under the employment agreements with Mr. Kuhns, Mr. Li and Ms. Fellows, such officer will only be entitled to the base salary through the effective date of the employment termination and such officer’s right to all other benefits under the employment agreement, other than vested benefits, will terminate, except as required by any applicable law.

We may also terminate our employment agreements with these executive officers without cause upon thirty calendar days’ advance written notice. Under the employment agreements with Mr. Kuhns, Mr. Li, Ms. Fellows and Mr. Gan, in such case of termination by us, and also in a case where an officer voluntarily terminates his/her employment with us upon thirty-days’ advance written notice for good reason (except in the event of a qualifying termination during certain change in control periods), the Company shall continue to provide the officer with his/her base salary and health and welfare benefits for a period of twelve full months. Further, the Company shall pay the officer all other benefits to which the officer has a vested right at the time, according to the provisions of each governing plan or program. Under the employment agreements with Mr. Kuhns, Mr. Li and Ms. Fellows, the Company shall also make a prorated payment of the executive’s bonus for the fiscal year in which termination occurs, calculated based upon the performance of the officer against the bonus criteria established by the board for the officer in effect through the end of the month immediately preceding the effective date of the termination, subject to the board’s discretion to increase the amount of such prorated payment. While, under the employment agreements with Dr. Lin, in both cases of termination by us for cause or without cause upon thirty calendar days’ advance written notice, such officers will be entitled to any base salary, bonus and incentive payment that has accrued under the agreement but has not been paid on or before the termination date and any reimbursement due to the officer under the agreement for expenses incurred by the officer on or before the termination date.

Under the employment agreements with Mr. Kuhns, Mr. Li and Ms. Fellows, in the event of a qualifying termination during a change in control period, the officer shall be entitled to certain

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benefits, including a lump sum equal to one and a half times or two times, as the case may be, the highest rate of the officer’s annual base salary in effect at any time up to and including the effective date of termination and a lump sum equal to the average annual bonus paid to the officer for the last three years prior to the change in control. In the event of constructive termination or termination of the employment agreement by the company without cause, under the employment agreements with Mr. Gan and Dr. Lin, such officers shall be entitled to receive an amount equal to 100% of his annualized salary as in effect on the severance date.

In addition, these employment agreements with Mr. Kuhns, Mr. Li, Ms. Fellows and Mr. Gan contain clauses of non-competition, non-solicitation, confidential information and work product agreements. According to these clauses, each of our executive officers should be bound by (i) non-competition restrictions during his/her employment and for two years after the termination of his/her employment and three years in the case of Mr. Gan, (ii) confidential information restrictions during his/her employment and for a period of three years thereafter and (iii) non-solicitation restrictions during the non- competition period.

Dr. Lin entered into a letter agreement with us, which contains, among others, confidentiality, non-competition and non-solicitation provisions.

We also entered into employment agreements respectively with Hong Zhang, Jinbin Zhou and Huakang Xiong. We will pay salary in accordance with the actual working time of each of them in the event of termination initiated by them and we will pay the compensation based on the number of years they each worked for our company at the rate of one month’s salary for each full year in the event of termination by the company. We have also entered into employment agreements with Gang Meng, Liya Chen, “Tara” Qiufang Li and certain other employees. Each of these employment agreements can be terminated under circumstances stipulated under the PRC Labor Contract Law and refers to confidentiality obligations provided under the PRC Labor Contract Law.

C. Board Practices

Our board of directors currently has seven directors. Our board has determined that Mr. Anthony H. Dixon, Dr. Yong Cao, Mr. Stephen Outerbridge, Mr. Shadron Lee Stastney and Mr. Richard Hochman are independent directors under NYSE rules.

Terms of Directors and Executive Officers

Our directors are divided into three classes and are subject to a term of office of three years and shall automatically retire from office (unless vacated sooner) on the expiry of such term, unless appointed for an additional term. Directors may be removed from office by an ordinary resolution of the shareholders. A director will be removed from office automatically if, among other things, the director becomes bankrupt or makes any arrangement or composition with his creditors, or dies or is found by our company to be or to have become of unsound mind. Our officers are appointed by and serve at the discretion of our board of directors.

Committees of the Board of Directors

Our board of directors has established an audit committee, a compensation committee and the corporate governance and nominating committee. We have adopted a charter for each of the three committees. Each committee’s members and functions are described below.

Audit Committee

Our audit committee consists of Mr. Dixon, Dr. Cao and Mr. Outerbridge, each of whom we believe satisfies the “independence” requirements under current NYSE rules and Rule 10A-3 under the Securities Exchange Act of 1934, as amended. Mr. Dixon acts as the chairman of our audit committee. Our board of directors has determined that Mr. Dixon qualifies as an “audit committee financial expert” under applicable SEC rules. The audit committee oversees our accounting and

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financial reporting processes and audits of the financial statements of our company. The audit committee is responsible for, among other things:

• selecting the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by the independent auditors;

• reviewing with the independent auditors any audit problems or difficulties and management’s response;

• reviewing and approving all proposed related party transactions, which term refers to transactions that would be required to be disclosed pursuant to Item 7B of Form 20-F, regardless of the dollar amount involved in such transactions;

• discussing the annual audited financial statements with management and the independent auditors;

• reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of material control deficiencies;

• annually reviewing and reassessing the adequacy of our audit committee charter; and

• meeting separately and periodically with management and the independent auditors.

Compensation Committee

Our compensation committee consists of Mr. Hochman and Mr. Stastney. Mr. Hochman acts as the chairman of our compensation committee. Our board has determined that both Mr. Hochman and Mr. Stastney qualify as an independent director of our company within the meaning of the current NYSE rules. The compensation committee assists the board in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive officers. The compensation committee is responsible for, among other things:

• reviewing and approving the total compensation package for our three most senior executives;

• reviewing and recommending to the board of directors with respect to the compensation of our directors; and

• reviewing periodically and approving any long-term incentive compensation or equity plans, programs or similar arrangements, annual bonuses, employee pension and welfare benefit plans.

Corporate Governance and Nominating Committee

Our corporate governance and nominating committee consists of Dr. Cao, Mr. Hochman and Mr. Dixon, each of whom satisfies the “independence” requirements under current NYSE rules. Dr. Cao acts as the chairman of our corporate governance and nominating committee. The corporate governance and nominating committee assists the board of directors in selecting individuals qualified to become our directors and in determining the composition of the board and its committees. The corporate governance and nominating committee is responsible for, among other things:

• identifying and recommending qualified candidates as director nominees for selection of directors, nominees for election to the board of directors, or for appointment to fill any vacancy;

• reviewing annually with the board of directors the current composition of the board of directors with regards to characteristics such as independence, age, skills, experience and availability of service to us;

• monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance.

Duties of Directors

Under Cayman Islands law, our directors have a fiduciary duty to act honestly in good faith with a view to the best interests of the Company. Our directors also have a duty to exercise the skill

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they actually possess with the care and diligence that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our Amended and Restated Memorandum and Articles of Association. The Company has the right to seek damages if a duty owed by our directors is breached.

The functions and powers of our board of directors include, among others:

• convening shareholders’ annual general meetings and reporting its work to shareholders at such meetings;

• declaring dividends and distributions;

• appointing officers and determining the term of office of officers;

• exercising the borrowing powers of our company and mortgaging the property of our company; and

• approving the transfer of shares of our company, including the registering of such shares in our share register.

Interested Transactions

Under our code of ethics, in the event that our board of directors considers entering into a transaction which would produce a conflict of interest, interested directors must abstain from any discussion of or vote on such transaction.

Remuneration

The directors may determine remuneration to be paid to the directors. The compensation committee assists the directors in reviewing and approving the compensation structure for the directors.

Power to Obligate our Company

The directors may exercise all the powers of our company to raise or borrow money and to mortgage or charge all or any part of its undertaking, property and assets (present and future) and uncalled capital, and to issue debentures, bonds or other securities whether outright or as collateral security for any debt liability or obligations of our company or of any third party.

Qualification

There is no shareholding qualification for directors.

Indemnification Agreements

We have entered into indemnification agreements with our directors. Each of the indemnification agreements provides the directors with contractual rights to indemnification and expense advancement rights.

Pursuant to our Amended and Restated Memorandum and Articles of Association and the indemnification agreements, our directors are indemnified to the fullest extent permitted under the law and public policy of the Cayman Islands for all judgments, fines, settlements, legal fees and other expenses actually and reasonably incurred in connection with pending or threatened legal proceedings because of such director’s position with us or another entity that the director serves at our request, subject to various conditions.

D. Employees

As of December 31, 2011, we had entered into written employment contracts with 681 employees. The following table sets forth the number of employees categorized by function as of December 31, 2011:

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	Number of Employees		(%)
Management		37		5.4
Finance		25		3.7
Project Construction, Operations and Management		509		74.7
Administrative and Human Resources		110		16.2
Total:		681		100.0

As of December 31, 2011, we had 33 employees working at our headquarters, 172 employees working in Zhejiang province, 5 employees working in Sichuan province, 153 employees working in Yunnan province, 290 employees working in Fujian province and 24 employees working in Henan province, respectively. As required by PRC regulations, our full-time employees in China participate in various employee benefit plans that are organized by municipal and provincial governments, including housing funds, pension, work-related injury benefits, maternity insurance, medical and unemployment benefit plans. We are required under PRC law to make contributions to the employee benefit plans at specified percentages of the salaries, bonuses and certain allowances of our employees, up to a maximum amount specified by the respective local government authorities where we operate our businesses. Members of the retirement plan are entitled to a pension equal to a fixed proportion of the salary prevailing at the member’s retirement date. In November 2008, our New York office established a safe harbor 401(k) retirement plan, which requires a dollar by dollar matching contribution from the employer, up to 3% of the employee’s eligible annual salary. This plan was discontinued from January 1, 2011. In 2010, we created profit sharing 401 (k) retirement plans, which allow the company to contribute from 0% to 25% of the employee’s eligible annual salary. In 2010 and 2011, the company contributed 13% of the employee’s eligible annual salary for certain officers. The total amount of contributions we made to employee benefit plans for the years ended December 31, 2009, 2010 and 2011 was $0.6 million, $0.9 million, and $1.0 million respectively. In 2010, we established a defined benefit plan for certain officers. For the year ended December 31, 2009, 2010 and 2011, we contributed $nil, $nil and $0.06 million respectively to the plan.

Each of our executive officers, including Mr. Kuhns, Dr. Lin, Mr. Li and Mr. Gan, has entered into a confidentiality and non-competition agreement with us. The non-competition provisions prohibit the executive officers from engaging in any activities that compete with our business during, and for certain periods after, their employment with our company.

We granted 3,897,000 stock options in August 2008, of which the options granted to one employee to purchase 5,000 ordinary shares expired as the employee terminated his services to us before the option became exercisable, 35,000 stock options in January 2009 and 7,000,000 stock options in December 2009 to our current and former directors, officers, consultants and key employees under our 2008 Share Incentive Plan. In December 2011, all the options granted to the directors, officers and consultants in 2008 and 2009, except 50,000 stock options granted to a former consultant and 40,000 stock options granted to our directors, were voluntarily cancelled and then the equivalent of the fair value of 416,956 new shares were granted to our officers and consultants.

E. Share Ownership

The following table sets forth information with respect to the beneficial ownership, within the meaning of Rule 13d-3 under the Exchange Act, of our ordinary shares, as of April 26, 2012, by:

• each of our directors and executive officers; and

• each person known to us to own beneficially more than 5% of our ordinary shares.

Percentage of beneficial ownership is calculated by dividing the number of shares beneficially owned by 161,989,097, which was the number of ordinary shares outstanding as of April 26, 2012. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days from April 26, 2012, including through the exercise of any option, warrant, or other right. These shares, however, are not included in the computation of the percentage ownership of any other person.

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Name	Ordinary Shares Beneficially Owned
	Number		Percent
Directors and Executive Officers
John D. Kuhns		1,808,200		1.1
Dr. Yong Cao		*		*
Anthony H. Dixon		*		*
Richard H. Hochman		*		*
Dr. You-Su Lin		*		*
Shadron Lee Stastney		*		*
Stephen Outerbridge		*		*
“James” Tie Li		*		*
Mary E. Fellows		*		*
Liya Chen		*		*
All Directors and Executive Officers as a Group(1)		4,769,825		2.9
Principal Shareholders:
Vicis Capital LLC(2)		48,882,716		28.4	%
CPI Ballpark Investments Ltd.(3)		38,744,395		23.9	%
Jennison Associates LLC(4)		19,607,913		12.1	%
Prudential Financial, Inc(4)		19,607,913		12.1	%
Swiss Re Financial Products Corporation(5)		10,114,506		6.2	%

*	Upon exercise of all options and warrants exercisable within 60 days after April 26, 2012, would beneficially own less than 1.0% of our outstanding ordinary shares.
(1)	Includes ordinary shares held by all of our directors and executive officers as a group and ordinary shares issuable upon the exercise of all of the options and warrants that are exercisable within 60 days after April 26, 2012, held by all of our directors and executive officers.
(2)	Includes 38,878,559 ordinary shares and 10,004,157 ordinary shares upon the exercise of an amended and restated warrant granted to Vicis Capital Master Fund in August 2011 that is exercisable within 60 days after April 26, 2012, with ownership percentage calculated by dividing (i) 38,878,559 ordinary shares plus 10,004,157 shares by (ii) 161,989,097 ordinary shares plus 10,004,157 ordinary shares. The amended and restated warrant expires on December 31, 2013 and has an exercise price of $1.15 per ordinary share. Vicis Capital Master Fund is a sub-trust of the Vicis Capital Master Series Trust, a unit trust organized under the laws of the Cayman Islands. The address of Vicis Capital Master Fund is Tower 56, Suit 700, 126 E. 56th Street, 7th Floor, New York, NY 10022. The address of Capital Master Series Trust is P. O. Box 1043GT, Caledonian House, First Floor, 69 Dr Roys Dr, George Town, Grand Cayman, Cayman Islands, BWI. Vicis Capital, LLC, a limited liability company organized under the laws of the state of Delaware, is the investment adviser to Vicis Capital Master Fund. The address of Vicis Capital, LLC is 445 Park Avenue, 16th Floor, New York, NY, 10022. John Succo, Shadron Lee Stastney and Sky Lucas have voting and investment control over the securities beneficially owned by Vicis Capital Master Fund and Vicis Capital, LLC.
(3)	Based on a Schedule 13D/A filed by NewQuest Asia Fund I (G.P.) Ltd. on April 25, 2011 and includes 38,744,395 shares beneficially owned by NewQuest Asia Fund I, L.P., a Cayman Islands exempted limited partnership, NewQuest Asia Fund I (G.P.) Ltd., a Cayman Islands exempted company and general partner of NewQuest Asia Fund I, L.P., CPI Ballpark Investments Ltd., a limited liability company organized under the laws of Mauritius and a wholly owned subsidiary of NewQuest Asia Fund I, L.P., and NewQuest Capital Management (Cayman) Limited, a Cayman Islands exempted company. NewQuest Capital Management (Cayman) Limited is an exempted company registered in the Cayman Islands. The principal address of NewQuest Capital Management (Cayman) Limited is Walker House, 87 Mary Street, George Town, Grand Cayman, Cayman Islands KY1-9005. NewQuest Asia Fund I (G.P.) Ltd. is an exempted company registered in the Cayman Islands. The principal address of NewQuest Asia Fund I (G.P.) Ltd. is Walker House, 87 Mary Street, George Town, Grand Cayman, Cayman Islands KY1-9005.

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	NewQuest Asia Fund I, L.P. is an exempted limited partnership registered in the Cayman Islands. The principal address of NewQuest Asia Fund I, L.P. is Walker House, 87 Mary Street, George Town, Grand Cayman, Cayman Islands KY1-9005. CPI Ballpark Investments Ltd. is wholly owned by NewQuest Asia Fund I, L.P. The principal address of CPI Ballpark Investments Ltd. is 10th Floor, Raffles Tower, 19 Cybercity, Ebene, Republic of Mauritius.
(4)	Based on Schedule 13G/As filed by Jennison Associates LLC and Prudential Financial, Inc. on February 14, 2012, respectively. As a result of its role as investment adviser to clients in its managed portfolios, Jennison Associates, LLC may be deemed to be the beneficial owner of 19,607,913 ordinary shares. The address of Jennison Associates, LLC is 466 Lexington Avenue, New York, New York 10017. Prudential Financial, Inc. is a parent holding company and the indirect parent of Jennison Associates, LLC. The address of Prudential Financial, Inc. is 751 Broad Street, Newark, New Jersey 07102- 3777.
(5)	Based on a Schedule 13G filed by Swiss Re Financial Products Corporation on February 11, 2011. Swiss Re Financial Products Corporation is a limited liability company organized under the laws of Delaware. The mailing address of Swiss Re Financial Products Corporation is 55 East 52nd Street, New York, New York 10055.

None of our existing shareholders has voting rights that will differ from the voting rights of other shareholders. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. Major Shareholders

Please refer to Item 6.E, “Directors, Senior Management and Employees—Share Ownership”

B. Related Party Transactions

The following describes our related party transactions since the beginning of 2009.

Transactions with Kuhns Brothers, Inc.

John D. Kuhns, our Chairman and Chief Executive Officer, is a member of the board of directors of Kuhns Brothers, Inc. Kuhns Brothers, Inc. is not a member of China Hydro, LLC and does not own a beneficial interest in any of our ordinary shares or any securities convertible into or exchangeable for our ordinary shares.

During the period from December 31, 2009 to December 31, 2011, the Company rented office space from Kuhns Brothers, Inc. The rental expenses for the years ended December 31, 2009, 2010 and 2011were $0.3 million, $0.3 million and $0.3 million respectively, which were expensed in our consolidated statements of operations.

During the period from January 1, 2009 to December 31, 2011, Kuhns Brothers, Inc. paid for certain general and administrative services provided to us on a reimbursement basis. The general and administrative services were $0.08 million, $0.1 million and $0.09 million respectively for the year ended December 31, 2009, 2010 and 2011, which were expensed in our consolidated statements of operations. These amounts were subsequently repaid in full by us.

In November 2009, we paid $0.2 million to Kuhns Brothers, Inc. as consideration for its financial advisory services in connection with our Series C convertible redeemable preferred shares offering.

Transactions with Henan Lantian Group Co., Ltd.

During the year ended December 31, 2010, Wuyue made a prepayment of $1,251 to Henan Lantian Group Co., Ltd, the original controlling shareholder, for the construction of Wuyue’s hydroelectric project.

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Transactions with Sanming City Chenyang Hydroelectric Co., Ltd.

Sanming City Chenyang Hydroelectric Co., Ltd. is a minority shareholder of Wangkeng. We received a deposit of $0.2 million in the year ended December 31, 2008 from Sanming City Chenyang Hydroelectric Co., Ltd. which represented the guarantee provided to us by Sanming City Chenyang Hydroelectric Co., Ltd. Such balances to Sanming City Chenyang Hydroelectric Co., Ltd. as of December 31, 2009 were unsecured and interest free. This amount was fully repaid to the Sanming City Chenyang Hydroelectric in 2011.

In November and December 2010, Xiaopengzu borrowed RMB6.0 million ($0.9 million) and RMB9.0 million ($1.3 million) respectively from Sanming City Chenyang Hydroelectric Co., Ltd. as fund for working capital. This amount was fully repaid in 2011.

In November 2010, Fujian Huabang paid RMB31.0 million ($4.6 million) to Sanming City Chenyang Hydroelectric Co., Ltd. as deposit for the acquisition of the remaining 10.0% noncontrolling interest in Wangkeng. This amount was fully repaid in 2011.

Transactions with Xiamen Youen Hydropower Development Co., Ltd.

Xiamen Youen Hydropower Development Co., Ltd is the minority shareholders of Jintang and Jinwei. In 2011, Jintang and Jinwei borrowed RMB1.3 million ($0.2 million) and RMB6.9 million ($1.1 million) respectively from Xiamen Youen Hydropower Development Co., Ltd as fund for working capital. As of December 31, 2011, the $10.7 million due to Xiamen Youen Hydropower Development Co., Ltd assumed in the acquisition of Jinling and its subsidiaries is unsecured and interest free.

Balances Payable to Nanping City Xingshui Co., Ltd. and Xiamen Youen Hydropower Development Co., Ltd.

Nanping City Xingshui Co., Ltd. is a minority shareholder of Jinlong, and Xiamen Youen Hydropower Development Co., Ltd. are minority shareholders of Jintang and Jinwei. In December 2010, we completed our purchase of Shaowu City Jinling Hydropower Co. Ltd. (hereafter “Jinling”), together with Jinling’s 55.0% controlling interest in Jinlong, Jinling’s 74.0% controlling interest in Jintang, and Jinling’s 74.0% controlling interest in Jinwei. As of December 31, 2011, the amount of RMB9.4 million ($1.5 million) due to Nanping City Xingshui Co., Ltd., and RMB67.3 million ($10.7 million) due to Xiamen Youen Hydropower Development Co., Ltd. as of December 31, 2011 represent the current liabilities acquired in the acquisition of Jinlong, Jintang and Jinwei.

Transactions with Bank of America Corporation

In November 2009, the company paid $0.8 million to Merrill Lynch Far East Limited, an entity beneficially owned by Bank of America Corporation, as consideration for its financial advisory services in connection with the Series C convertible redeemable preferred shares offering.

Legal Services Provided by Zhongsheng Law Firm

We paid $12,000, $12,005 and $12,380 in 2009, 2010 and 2011, respectively, for legal services provided by Zhongsheng Law Firm. Gang Li, the brother of Mr. “James” Tie Li, was a partner of Zhongsheng Law Firm and provided legal services to us.

Private Placements

In October 2009, we issued in a private placement to Aqua Resources Asia Holdings Limited 20,000 Series C convertible redeemable preferred shares at $1,000 per share for a total consideration of $20.0 million.

In December 2009, we agreed to issue upon the closing of the initial public offering to Broadband Capital Management LLC a warrant exercisable for the purchase of units equal to an aggregate of 4.0% of the units sold in the initial public offering at an exercise price equal to 120%

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of the offering price of the units sold in the initial public offering, or $19.20 per unit. Each such unit consists of one ADS (which consists of three ordinary shares) and one warrant to purchase three ordinary shares. The warrant issued to Broadband Capital Management LLC will become exercisable commencing 540 days from January 25, 2010 for a total of 1,440,000 ordinary shares. The warrants underlying the units issuable upon exercise of Broadband Capital Management LLC’s warrant are equivalent to the warrants issued in the initial public offering, except that such warrants are exercisable at 120% of the initial public offering warrant exercise price ($17.76 for three ordinary shares), are exercisable on a cashless basis, are non-redeemable and have a five-year term.

In August 2011, we sold 8,662,509 ordinary shares to Vicis Capital Master Fund for $1.1544 per ordinary share. The purchase was made by way of a partial exercise of an existing warrant held by Vicis Capital Master Fund, which was issued to Vicis Capital Master Fund in April 2007 and allows Vicis Capital Master Fund to purchase up to 18,666,666 ordinary shares at an exercise price of $5.00 per share. The partial exercise of that warrant was at an agreed upon reduced exercise price of $1.15 (which was equivalent to the 25 day trailing average closing price of the Company’s ADSs as of the close of business on August 17, 2011). In addition, the existing warrant held by Vicis Capital Master Fund was further amended to, among other things, (i) reduces the exercise price on the balance of the warrant (representing 10,0004,157 ordinary shares) from $5 per ordinary share to $1.15 per ordinary share, and (ii) extends the expiration date of the warrant from November 10, 2011 to December 31, 2013.

Shareholders Agreement

Under the terms of an amended and restated shareholders agreement with our former Series A, Series B and Series C convertible redeemable preferred shareholders, among others, at any time six months after the closing of our initial public offering, any shareholder(s) holding of record at least 15% of Series A, Series B or Series C registrable securities then outstanding may, on three occasions only, request us to effect the registration, on a form other than Form F-3, of all or part of the Series A, Series B or Series C registrable securities then outstanding. Series A, Series B and Series C registrable securities are ordinary shares issued or issuable to the holders of our Series A, Series B and Series C convertible redeemable preferred shares or their respective transferees.

In addition, upon our company becoming eligible for using Form F-3, any holder of registrable securities may request us to effect a registration statement on Form F-3 for a public offering of registrable securities and we are entitled to use Form F-3, or a comparable form, for such offering. Holders of registrable securities may demand a registration on Form F-3 on unlimited occasions, although we are not obligated to affect more than two such registrations in any 12-month period.

Holders of registrable securities also have “piggyback” registration rights, whereby they may request us to register all or any part of the registrable securities then held by such holders when we register any of our ordinary shares. If any of the offerings involves an underwriting, the managing underwriter of any such offering has certain rights to limit the number of shares included in such registration. However, the number of registrable securities included in an underwritten public offering subsequent to our initial public offering pursuant to “piggyback” registration rights may not be reduced to less than 25% of the aggregate securities included in such offering. However, no specific damages, payment, transfer or any other consideration to holders of registrable securities is provided for in the event of non-performance to effect a registration statement.

2008 Share Incentive Plan

We have granted share options to some of our directors, officers and related parties. See “Management—2008 Share Incentive Plan.”

C. Interests of Experts and Counsel

Not applicable.

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ITEM 8. FINANCIAL INFORMATION

A. Consolidated statements and other financial information.

We have appended consolidated financial statements filed as part of this annual report. See Item 18, “Financial Statements.”

Legal Proceedings

See Item 4, “Information on the Company—Business Overview—Legal Proceedings.”

Dividend Policy

We have never declared or paid cash dividends on our ordinary shares. We currently intend to retain all of our available funds and future earnings for use in the operation and expansion of our business and do not anticipate paying cash dividends in the foreseeable future. Under the terms of our Amended and Restated Memorandum and Articles of Association the declaration and payment of any dividends in the future will be determined by our board of directors, in its discretion, and will depend on a number of factors, including our earnings, capital requirements and overall financial condition and our ability to receive dividends from our operating subsidiaries. If we pay any dividends, we will pay our ADS holders dividends with respect to their underlying shares to the same extent as holders of our ordinary shares, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars.

Current regulations in China permit our PRC subsidiaries to pay dividends to us only out of their respective accumulated distributable profits, if any, determined in accordance with their articles of association and PRC accounting standards and regulations. The ability of these subsidiaries to make dividends and other payments to us may be restricted by factors that include changes in applicable foreign exchange laws and other laws and regulations. In particular, wholly foreign-owned enterprises in China are required to set aside at least 10% of their after-tax profits each year, if any, to fund their reserve fund unless such reserve fund has reached 50% of their respective registered capital and to set aside a percentage of their after-tax profits, if any, to their employee bonus and welfare fund which is decided by their respective boards of directors. Sino-foreign equity joint ventures are also required to set aside a percentage of their annual after-tax profits, if any, to their reserve fund, enterprise development fund and employee bonus and welfare fund at percentages that are decided by their respective boards of directors. PRC domestic companies are required to set aside at least 10% of their after- tax profits each year, if any, to fund their respective statutory reserve fund unless such fund has reached 50% of their respective registered capital. Such cash reserve may not be distributed as cash dividends. In addition, if any of our PRC operating subsidiaries incurs further debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other payments to us. Some of our subsidiaries are restricted from paying dividends by the terms of outstanding loan agreements. See “Risk Factors—Risks Relating to our Company and the PRC Hydropower Industry—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.”

B. Significant Changes

See “Item 5. Operating and Financial Review and Prospects—Going Concern” and “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources.”

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ITEM 9. THE OFFER AND LISTING.

A. Offering and listing details.

Price Range of Our ADSs

Our ADSs are listed for trading on the New York Stock Exchange under the symbol “CHC” since January 25, 2010. The following table sets forth the high and low trading prices of our ADSs on the New York Stock Exchange for the periods indicated:

	High			Low
Yearly highs and lows
Year 2010		$	14.80		$	5.60
Year 2011			7.72			0.67
Quarterly highs and lows
First Quarter 2010			14.80			8.51
Second Quarter 2010			9.85			7.12
Third Quarter 2010			8.09			5.60
Fourth Quarter 2010			7.90			5.82
First Quarter 2011			7.64			6.90
Second Quarter 2011			7.46			2.77
Third Quarter 2011			4.49			2.01
Fourth Quarter 2011			2.04			0.67
First Quarter 2012			2.44			0.95
Monthly highs and lows
January 2010			14.80			12.28
February 2010			12.66			8.58
March 2010			10.49			8.51
April 2010			9.54			8.26
May 2010			9.85			7.14
June 2010			8.21			7.12
July 2010			8.09			5.60
August 2010			6.27			5.63
September 2010			6.19			5.68
October 2010			7.70			5.82
November 2010			7.90			6.69
December 2010			7.65			6.99
January 2011			7.47			6.92
February 2011			7.64			6.90
March 2011			7.72			7.04
April 2011			7.46			5.76
May 2011			6.53			4.23
June 2011			4.69			2.77
July 2011			4.49			3.51
August 2011			4.07			2.21
September 2011			2.65			2.01
October 2011			2.04			1.46
November 2011			0.76			0.67
December 2011			1.14			0.78
January 2012			1.40			0.95
February 2012			1.85			1.12
March 2012			2.44			1.60
April 2012 (April 1, 2012 through April 26, 2012)			2.01			1.52

On April 26, 2012, the closing sale price of our ADSs as reported on the New York Stock Exchange was $1.58 per ADS.

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Our warrants are listed for trading on the New York Stock Exchange under the symbol “CHCWS” since January 25, 2010. The following table sets forth the monthly high and low trading prices of our ADSs on the New York Stock Exchange for the periods indicated:

	High			Low
Yearly highs and lows
Year 2010		$	1.77		$	0.28
Year 2011			0.38			0.03
Quarterly highs and lows
First Quarter 2010			1.77			0.35
Second Quarter 2010			1.19			0.35
Third Quarter 2010			1.20			0.45
Fourth Quarter 2010			0.85			0.28
First Quarter 2011			0.38			0.26
Second Quarter 2011			0.37			0.10
Third Quarter 2011			0.39			0.08
Fourth Quarter 2011			0.14			0.03
First Quarter 2012			0.05			0.01
Monthly highs and lows
January 2010			1.77			1.20
February 2010			1.55			0.95
March 2010			1.33			0.35
April 2010			1.10			0.35
May 2010			1.19			0.49
June 2010			0.97			0.48
July 2010			1.20			0.54
August 2010			0.80			0.45
September 2010			0.52			0.42
October 2010			0.72			0.39
November 2010			0.85			0.46
December 2010			0.58			0.28
January 2011			0.39			0.25
February 2011			0.38			0.26
March 2011			0.35			0.26
April 2011			0.37			0.24
May 2011			0.34			0.16
June 2011			0.22			0.10
July 2011			0.39			0.14
August 2011			0.19			0.11
September 2011			0.20			0.08
October 2011			0.14			0.05
November 2011			0.11			0.03
December 2011			0.06			0.03
January 2012			0.04			0.02
February 2012			0.04			0.01
March 2012			0.05			0.02
April 2012 (April 1, 2012 through April 26, 2012)			0.06			0.01

On April 26, 2012, the closing sale price of our warrants as reported on the New York Stock Exchange was $0.04 per warrant.

B. Plan of Distribution

Not applicable.

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C. Markets

See Item 9.A above.

D. Selling Shareholders

Not applicable.

E. Dilution

Not applicable.

F. Expenses of the Issue

Not applicable.

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ITEM 10. ADDITIONAL INFORMATION.

A. Share capital

Not applicable.

B. Memorandum and Articles of Association

The following are summaries of material provisions of our amended and restated memorandum and articles of association, as well as the Companies Law (2010 Revision) insofar as they relate to the material terms of our ordinary shares.

Registered Office and Objects

The Registered Office of our company is situated at the offices of Appleby Trust (Cayman) Ltd., Clifton House, 75 Fort Street, P.O. Box 1350, George Town, Grand Cayman, KY-1108 or at such other place in the Cayman Islands as the directors of the Company may from time to time decide. The objects for which our company is established are unrestricted and we have full power and authority to carry out any object not prohibited by the Companies Law (2010 Revision), as amended from time to time, or any other law of the Cayman Islands.

Board of Directors

Our board of directors consists of seven directors, including five independent directors. Directors who are in any way, whether directly or indirectly, interested in a contract or proposed contract with our company shall declare the nature of their interest at a meeting of the board of directors. Following such declaration, a director may vote in respect of any contract or proposed contract notwithstanding his interest. However, under our code of ethics, in the event that our board of directors considers entering into a transaction which would produce a conflict of interest, interested directors must abstain from any discussion of or vote on such transaction.

Directors are not required to hold shares; however, a minimum share requirement for directors may be established at a general meeting. Directors may exercise all powers of our company to borrow money, under our Amended and Restated Memorandum and Articles of Association, in a variety of ways, including issuing bonds and other securities either outright or as security for any debt liability or obligation of our company or of any third party.

Ordinary Shares

General. The ordinary shares of the Company are issued in book-entry form only. Our shareholders who are nonresidents of the Cayman Islands may freely hold and vote their ordinary shares.

Dividends. The holders of our ordinary shares are entitled to such dividends as may be declared by the board of directors subject to the Companies Law. All dividends or distributions will be paid out of our realized or unrealized profits, or out of the share premium account or other reserve account permitted by the Companies Law.

Voting Rights. Each ordinary share is entitled to one vote on all matters upon which the ordinary shares are entitled to vote. Voting at any meeting of shareholders is by show of hands unless a poll is demanded or required by the rules of the designated stock exchange. A poll may be demanded by (i) the chairman of the meeting, (ii) a shareholder or shareholders present in person by its duly authorized representative or by proxy, and holding not less than one-tenth of the issued share capital of our voting shares; (iii) by at least three shareholders present in person or represented by proxy, or (iv) any shareholder, present in person or represented by proxy, holding shares conferring the right to vote at such meeting, being shares on which as aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all such shares conferring such right.

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A quorum required for a meeting of shareholders consists of one or more shareholders present in person or by proxy or, if a corporation or other non-natural person, by its duly authorized representative, holding not less than one-third of the total voting rights of ordinary shares represented at a general meeting. Shareholders’ meetings are held annually and may be convened by our board of directors on its own initiative or by one or more members holding an aggregate of one-third of the issued and outstanding shares. Advance notice of at least twenty-one days is required for the convening of a general meeting.

No business may be transacted at a general meeting, other than business that is specified in a notice given at the direction of, or otherwise properly brought before the meeting by, our board of directors or is properly brought by a shareholder who provides us with advance notice, in accordance with our Amended and Restated Memorandum and Articles of Association, describing the business desired to be conducted at the general meeting.

An ordinary resolution to be passed by the shareholders requires the affirmative vote of a simple majority of the votes attaching to the ordinary shares cast in a general meeting, while a special resolution requires the affirmative vote of no less than two-thirds of the votes cast attaching to the ordinary shares. A special resolution is required for important matters such as a change of name or an amendment to our Amended and Restated Memorandum and Articles of Association.

Transfer of Shares. Subject to the restrictions of our Amended and Restated Memorandum and Articles of Association, as more fully described below, any of our shareholders may transfer all or any of his or her ordinary shares by executing an instrument of transfer and, upon approval by the board in writing, the name of the transferee is entered into the register of shareholders in order for the transfer to become effective.

If a shareholder dies, the legal representative of the deceased shareholder is the only person recognized as having title to his share interest. Any person entitled to a share as a result of death or bankruptcy or liquidation or dissolution of a shareholder (or in any other way than by transfer) may, upon providing evidence of such right, elect to become the holder of the share or nominate someone as the transferee. In either case, our directors have the same right to decline or suspend registration as they would have in the case of a transfer of the share by the shareholder before his death or bankruptcy, unless the transferee is an immediate family member of the shareholder or a trust for their benefit.

Liquidation. On a return of capital on winding-up or otherwise (other than on conversion, redemption or purchase of shares), assets available for distribution among the holders of ordinary shares will be distributed among the holders of the ordinary shares on a pro rata basis. If our assets available for distribution are insufficient to repay all of the paid-up capital, the assets will be distributed so that the losses are borne by our shareholders proportionately.

Redemption of Shares. Subject to the provisions of the Companies Law and our Amended and Restated Memorandum and Articles of Association and to any special rights conferred on the holders of any shares or class of shares, the board of directors may issue shares on terms that they are subject to redemption at the option of the board or at the option of the holders, on such terms and in such manner as may be determined by ordinary resolution, before the issue of the shares.

Variations of Rights of Shares. The rights attached to any class of shares may, subject to the provisions of the Companies Law and to any special rights attached to any class of shares, be varied with the sanction of a special resolution passed at a separate general meeting of the holders of the shares of that class at which the necessary quorum shall be one or more persons holding or representing by proxy not less than one-third of the issued shares of that class.

Cumulative Voting. Under Cayman Islands law, cumulative voting is allowed. However, under our Amended and Restated Memorandum and Articles of Association cumulative voting is not allowed. Cumulative voting potentially facilitates the representation of minority shareholders on a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single director, which increases the shareholder’s voting power with respect to electing such director.

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Inspection of Books and Records. Holders of our ordinary shares have no general right under Cayman Islands law to inspect or obtain copies of our list of shareholders or our corporate records. However, we will provide our shareholders with annual audited financial statements.

Designations and Classes of Shares. Upon the closing of this offering all of our issued shares will be ordinary shares. Our Amended and Restated Articles of Association provide that our authorized unissued shares shall be at the disposal of our board of directors, which may subject to any special rights conferred on the holders of any shares or class of shares, offer, allot, grant options over or otherwise dispose of them to such persons, at such times and for such consideration and upon such terms and conditions as our board may in its absolute discretion determine. In particular, our board of directors is empowered to redesignate from time to time authorized and unissued ordinary shares as other classes or series of shares, to authorize from time to time the issuance of one or more series of preferred shares and to fix the designations, powers, preferences and relative, participating, optional and other rights, if any, and the qualifications, limitations and restrictions thereof, if any, including without limitation, the number of shares constituting each such class or series, dividend rights, conversion rights, redemption privileges, voting powers and liquidation preferences, and to increase or decrease the size of any such class or series, to the extent permitted by the Amended and Restated Articles of Association and the Companies Law.

Preferred Shares

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 may fall and the voting and other rights of the holders of our ordinary shares may be adversely affected.

C. Material Contracts

We have not entered into any material contracts other than in the ordinary course of business and other than those described in Item 4, “Information on the Company” and in Item 7, “Major Shareholders and Related Party Transactions” or elsewhere in this annual report on Form 20-F.

D. Exchange Controls

Please refer to Item 4, “Information on the Company—Regulation”.

E. Taxation

The following summary of the material Cayman Islands, PRC and U.S. federal income tax consequences of an investment in our securities is based upon laws and relevant interpretations thereof in effect as of the date of this annual report, all of which are subject to change. This summary does not deal with all possible tax consequences relating to an investment in our securities, such as the tax consequences under state, local, non-U.S., non-PRC and non-Cayman Islands tax laws.

Cayman Islands Taxation

The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to the Company levied by the Government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or brought within, the jurisdiction of the Cayman Islands. The Cayman Islands is not party to any double taxation treaties, save for a Double Taxation Arrangement with the United Kingdom which was signed on 16 June 2009 but which is not, as of the date hereof, in force. There are no exchange

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control regulations or currency restrictions in the Cayman Islands, apart from standard anti-money laundering legislation.

No Cayman Islands stamp duty will be payable by you in respect of the issue or transfer of ordinary shares or warrants. However, an instrument transferring title to an ordinary share or warrant, if brought to or executed in the Cayman Islands, would be subject to Cayman Islands stamp duty.

People’s Republic of China Taxation

Under the Enterprise Income Tax Law of 2007 and its Implementation Regulations, both of which became effective on January 1, 2008, an enterprise established outside the PRC with its “de facto management body” within the PRC is considered a resident enterprise. The “de facto management body” is defined as an organization that exercises material and full management and control over matters including the enterprise’s production and operations, personnel, finance and property. 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. However, a substantial number of our management members reside in the PRC, and almost all of our revenues derive from our operations in the PRC. We may therefore be treated as a resident enterprise for PRC tax purposes and be subject to an enterprise income tax rate of 25% on our worldwide income. Dividends received directly from another PRC tax resident enterprise may be exempted from the taxable income.

Moreover, the Enterprise Income Tax and its Implementation Regulations provide that an income tax rate of 10% will be applicable to dividends payable to non-PRC shareholders that are derived from sources within the PRC, unless a tax treaty exists between the PRC and the relevant jurisdictions where such non-PRC shareholders reside and such treaty provides for a reduction or exemption of the relevant tax. If we are considered a non-resident enterprise, dividends we received from our PRC resident subsidiaries will be subject to the 10% PRC income tax. Cayman Islands, where our company was incorporated, has not concluded any tax treaty with the PRC. Furthermore, if we are treated as a resident enterprise for PRC tax purposes, it is unclear whether dividends you receive on our ordinary shares or ADSs, or the gain you may realize from the disposition of our ordinary shares, ADSs or warrants, would be treated as income derived from sources within the PRC and would be subject to PRC tax. It is also unclear whether, if we would be treated as a resident enterprise for PRC tax purposes, holders of our ordinary shares, ADSs or warrants might be able to enjoy the benefit of income tax treaties entered into between the PRC and other countries.

On February 20, 2009, the State Administration of Taxation promulgated the Notice on Relevant Issues of Implementing Dividend Clauses under Tax Treaties, or the Notice. According to the 2009 Notice, no enterprise is entitled to enjoy preferential treatment on dividend withholding tax rates pursuant to any tax treaties if such enterprise qualifies for such preferential tax rates through any transaction or arrangement, the major purpose for which is to obtain such preferential tax treatment. The tax authority in charge has the right to make adjustments to the applicable tax rates, if it determines that any tax payer has enjoyed preferential treatment under tax treaties as a result of such transaction or arrangement. Since the 2009 Notice is newly issued, it remains unclear how the PRC tax authorities will implement it in practice and to what extent it will affect the dividend withholding tax rates for dividends distributed by our subsidiaries in the PRC to our Hong Kong subsidiary. If the relevant tax authority determines that our Hong Kong subsidiary was set up for the purpose of taking advantage of the preferential tax rates on dividends, the higher 10% withholding tax rate may apply to such dividend, which will reduce the funds ultimately available to pay dividends to our shareholders.

On August 24, 2009, the State Administration of Taxation promulgated the Administrative Measures for Enjoyment of Tax Treaty Treatments by Non-residents (Trial), or the Administrative Measures, with the effective date on October 1, 2009. Pursuant to the Administrative Measures, the

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treatment under tax treaties refers to the tax liabilities that should be paid according to the PRC tax laws but can be reduced or exempted under tax treaties. Where non-residents, including non-resident enterprises and non-resident individuals, enjoy special treatment under tax treaties in terms of dividends, interest, royalties or property gains, such non-residents shall apply to the competent tax authorities for examination and approval in accordance with the Administrative Measures; otherwise, they will not be able to enjoy the treatment under the tax treaties.

U.S. Federal Income Taxation

Introduction

The following discusses the material U.S. federal income tax consequences of the purchase, ownership and disposition of the ordinary shares, ADSs or warrants, which we refer to collectively as our securities, by U.S. Holders, as defined below. This discussion applies only to U.S. Holders that purchase and hold the securities as capital assets. This discussion is based on the Internal Revenue Code of 1986, as amended, or the Code, Treasury regulations promulgated thereunder, and administrative and judicial interpretations thereof, all as in effect on the date hereof and all of which are subject to change, possibly with retroactive effect, or to different interpretation. This discussion does not address all of the tax considerations that may be relevant to specific holders in light of their particular circumstances or to holders subject to special treatment under U.S. federal income tax law, such as banks, other financial institutions, insurance companies, tax-exempt entities, persons who acquired the securities pursuant to the exercise of employee stock options, participation in an employee stock purchase plan or otherwise as compensation, regulated investment companies, real estate investment trusts, dealers in securities, brokers, U.S. expatriates, persons subject to the alternative minimum tax, persons who have acquired the securities as part of a straddle, hedge, conversion transaction or other integrated investment, persons that have a “functional currency” other than the U.S. dollar or persons that own, or are deemed to own, 10% or more, by voting power, of our stock. Additionally, this discussion does not consider the tax treatment of partnerships or other pass-through entities or persons who hold our securities through such entities. If a partnership holds securities, the consequences to a partner will depend upon the status of the partner and upon the activities of the partnership. A partner of a partnership holding securities should consult its own tax adviser regarding the U.S. tax consequences of its investment in the securities through the partnership. This discussion does not address any U.S. state or local or non-U.S. tax considerations or any U.S. federal estate, gift or alternative minimum tax considerations. Further, the discussion below assumes that any distributions made (or deemed made) on the securities and any consideration received by a holder in consideration for the sale or other disposition of the securities will be in U.S. dollars.

As used in this discussion, the term “U.S. Holder” means a beneficial owner of the securities that is, for U.S. federal income tax purposes, (i) an individual who is a citizen or resident of the United States, (ii) a corporation, or other entity treated as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States or of any state or political subdivision thereof or therein, including the District of Columbia, (iii) an estate, the income of which is subject to U.S. federal income tax regardless of the source thereof, or (iv) a trust with respect to which a court within the United States is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all of its substantial decisions, or certain electing trusts that were in existence on August 19, 1996 and were treated as domestic trusts on that date. If a beneficial owner of the securities is not described as a U.S. Holder and is not an entity treated as a partnership or other pass-through entity for U.S. federal income tax purposes, such owner will be considered a “Non-U.S. Holder.” The U.S. federal income tax consequences applicable specifically to Non- U.S. Holders are described below under the heading “Tax Consequences to Non-U.S. Holders of Ordinary Shares and Warrants”.

The discussion below assumes that the representations contained in the deposit agreement are true and that the obligations in the deposit agreement and any related agreement have and will be complied with in accordance with their terms. For U.S. federal income tax purposes, a holder of an ADS should be treated as the beneficial owner of the ordinary shares represented by the ADSs and

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exchanges of ordinary shares for ADSs, and ADSs for ordinary shares, should not be subject to U.S. federal income tax.

The U.S. Treasury has expressed concerns that parties to whom ADSs are pre-released may be taking actions that are inconsistent with the claiming by U.S. Holders of ADSs of foreign tax credits for U.S. federal income tax purposes. Such actions would also be inconsistent with the claiming of the reduced rate of tax applicable to dividends received by certain non-corporate U.S. Holders, including individual U.S. Holders, as described below. Accordingly, the availability of foreign tax credits or the reduced tax rate for dividends received by certain non-corporate U.S. Holders, including individual U.S. Holders, could be affected by future actions that the U.S. Treasury or parties to whom ADSs are pre-released may take.

PROSPECTIVE INVESTORS SHOULD CONSULT THEIR TAX ADVISORS AS TO THE PARTICULAR TAX CONSIDERATIONS APPLICABLE TO THEM RELATING TO THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE SECURITIES, INCLUDING THE APPLICABILITY OF U.S. FEDERAL, STATE AND LOCAL TAX LAWS OR NON-U.S. TAX LAWS, ANY CHANGES IN APPLICABLE TAX LAWS AND ANY PENDING OR PROPOSED LEGISLATION OR REGULATIONS.

Tax Consequences to U.S. Holders of Ordinary Shares and Warrants

Exercise of a Warrant

Subject to the PFIC rules discussed below, a U.S. Holder generally will not recognize gain or loss upon the exercise of a warrant. Ordinary shares acquired pursuant to the exercise of a warrant for cash generally will have a tax basis equal to the U.S. Holder’s tax basis in the warrant (that is, the portion of the U.S. Holder’s purchase price for a unit that is allocated to the warrant), increased by the amount paid to exercise the warrant. The holding period of such ordinary shares generally would begin on the day after the date of exercise of the warrant.

Sale, Taxable Exchange, Redemption or Expiration of a Warrant

Subject to the PFIC rules discussed below, upon a sale, taxable exchange (but not exercise), or redemption of a warrant, a U.S. Holder will recognize gain or loss in an amount equal to the difference between (i) the amount realized upon such disposition (or, if the warrant is disposed of through the disposition of a unit, the portion of the amount realized on such disposition that is allocated to the warrant based on the then fair market values of the warrant and the ordinary share included in the unit) and (ii) the U.S. Holder’s tax basis in the warrant (that is, the portion of the U.S. Holder’s purchase price for a unit that is allocated to the warrant). Upon expiration of a warrant, a U.S. Holder will recognize a loss in an amount equal to the U.S. Holder’s tax basis in the warrant. Any such gain or loss would generally be treated as capital gain or loss and will be long-term capital gain or loss if the warrant was held by the U.S. Holder for more than one year at the time of such disposition or expiration. As discussed below in “Sale or other Disposition of Ordinary Shares or ADSs,” the deductibility of capital losses is subject to various limitations, as is the deduction for losses upon a taxable disposition by a U.S. Holder of a warrant (whether or not held as part of a unit) if, within a period beginning 30 days before the date of such disposition and ending 30 days after such date, such U.S. Holder has acquired (by purchase or by an exchange on which the entire amount of gain or loss was recognized by law), or has entered into a contract or option so to acquire, substantially identical securities.

If PRC taxes apply to any gain from the disposition of a warrant by a U.S. Holder (see “Taxation—People’s Republic of China Taxation,” above), such taxes may be treated as foreign taxes eligible for credit against such holder’s U.S. federal income tax liability (subject to certain limitations), and a U.S. Holder may be entitled to certain benefits under the income tax treaty between the United States and the PRC. The rules relating to the U.S. foreign tax credit are complex. U.S. Holders should consult their own tax advisors regarding the creditability of any such PRC tax and their eligibility for the benefits of the income tax treaty between the United States and the PRC.

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Dividends

Subject to the discussion below under “—Passive Foreign Investment Company” and “—Controlled Foreign Corporation,” the gross amount of any distribution made by us on the ordinary shares or ADSs, other than certain pro rata distributions of ordinary shares or ADSs or rights to acquire ordinary shares or ADSs and certain distributions in redemption of ordinary shares or ADSs, will be treated as a dividend includible in the gross income of a U.S. Holder as ordinary income to the extent of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles, when actually or constructively received by the U.S. Holder, in the case of ordinary shares, or when actually or constructively received by the depositary, in the case of ADSs. To the extent the amount of such distribution exceeds our current and accumulated earnings and profits as so computed, it will be treated first as a non-taxable return of capital to the extent of such U.S. Holder’s adjusted tax basis in such ordinary shares or ADSs and, to the extent the amount of such distribution exceeds such adjusted tax basis, will be treated as gain from the sale of such ordinary shares or ADSs. We, however, may not calculate earnings and profits in accordance with U.S. federal income tax principles. In this case, U.S. Holders may have to treat all distributions as dividends.

Certain dividends received by non-corporate U.S. Holders, including individuals, in taxable years beginning before January 1, 2011, will be subject to a maximum income tax rate of 15%. This reduced income tax rate is applicable to dividends paid by “qualified foreign corporations” and only with respect to ordinary shares or ADSs held for a minimum holding period of at least 61 days during a specified 121-day period, and if certain other conditions are met. A qualified foreign corporation is any non-U.S. corporation if (a) either (i) its stock is readily tradable on an established securities market in the United States or (ii) it is eligible for the benefits of a qualifying income tax treaty with the United States that includes an exchange of information program, and (b) it is not a passive foreign investment company (as discussed below) for both the taxable year in which the dividend is paid and the preceding taxable year. We expect to be considered a qualified foreign corporation because our ADSs will be listed on the NYSE. Accordingly, subject to the discussions below under “—Passive Foreign Investment Company” and “—Controlled Foreign Corporation,” dividends paid by us on our ADSs should be eligible for the reduced income tax rate. In addition, if we are treated as a “resident enterprise” for PRC tax purposes under the EIT Law, we may be eligible for the benefits of the income tax treaty between the United States and the PRC, see “Taxation—People’s Republic of China Taxation”. Dividends paid by us will not be eligible for the “dividends received” deduction allowed to corporate shareholders with respect to dividends received from U.S. corporations. The U.S. Treasury Department has announced its intention to promulgate rules pursuant to which U.S. Holders of the ordinary shares or ADSs and intermediaries through whom such ordinary shares or ADSs are held will be permitted to rely on certifications from issuers to establish that dividends are treated as qualified dividends. Because such rules have not yet been issued, it is not clear whether we will be in a position to comply with them. U.S. Holders should consult their own tax advisors regarding the availability of the reduced dividend tax rate in the light of their particular circumstances.

Dividends paid by us will constitute income from sources outside the United States for U.S. foreign tax credit limitation purposes and will be categorized as “passive category income” or, in the case of certain U.S. Holders, as “general category income” for U.S. foreign tax credit purposes. If PRC withholding taxes apply to dividends paid to a U.S. Holder with respect to our ADSs or ordinary shares, see “Taxation—People’s Republic of China Taxation”, subject to certain conditions and limitations, such PRC withholding taxes may be treated as foreign taxes eligible for credit against such holder’s U.S. federal income tax liability. The rules relating to the U.S. foreign tax credit are complex. U.S. Holders should consult their own tax advisors regarding the effect of these rules in their particular circumstance.

Certain distributions of additional ordinary shares or ADSs to U.S. Holders with respect to their ordinary shares or ADSs that is made as part of a pro rata distribution to all shareholders will not be subject to U.S. federal income tax.

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Sale or Other Disposition of Ordinary Shares or ADSs

Subject to the discussion below under “—Passive Foreign Investment Company” and “—Controlled Foreign Corporation,” a U.S. Holder will recognize gain or loss for U.S. federal income tax purposes upon a sale or other disposition of the ordinary shares or ADSs in an amount equal to the difference between the amount realized from such sale or disposition and the U.S. Holder’s adjusted tax basis in such ordinary shares or ADSs. Such gain or loss will be a capital gain or loss and will be long-term capital gain, taxable at a reduced rate for non-corporate U.S. Holders, including individuals, or loss if, on the date of sale or disposition, such ordinary shares or ADSs were held by such U.S. Holder for more than one year. The deductibility of capital losses is subject to limitations under the Code. Any gain or loss on the sale or disposition by a U.S. Holder will be treated as U.S. source income or loss for U.S. foreign tax credit limitation purposes, subject to certain exceptions and limitations. However, if we are treated as a “resident enterprise” for PRC tax purposes, we may be eligible for the benefits of the income tax treaty between the United States and the PRC. In such event, if PRC tax were to be imposed on any gain from the disposition of the ADSs or ordinary shares, see “Taxation—People’s Republic of China Taxation”, a U.S. Holder that is eligible for the benefits of the income tax treaty between the United States and the PRC may elect to treat the gain as PRC source income. The U.S. foreign tax credit rules are complex. Therefore, U.S. Holders should consult their own tax advisors regarding the application of such foreign tax credit rules.

Controlled Foreign Corporation

Special rules may apply to certain U.S. Holders if we are considered a controlled foreign corporation. A controlled foreign corporation, or CFC, is a foreign corporation in which U.S. Holders, who each own directly, indirectly or constructively at least 10% of the voting power of the foreign corporation (each a U.S. 10% shareholder), collectively own more than 50% of the total combined voting power or total value of the corporation. Under the aforementioned constructive ownership rules, a U.S. Holder’s warrants (or other options to acquire shares or ADSs) will be taken into account in determining whether such U.S. Holder is a U.S. 10% shareholder. There is a possibility that we may be a CFC following the issuance of the ADSs. If we were a CFC for an uninterrupted period of 30 days or more during a taxable year, a U.S. 10% shareholder on the last day of our taxable year on which we were a CFC must include in income its pro rata share of our subpart F income and may be required to include in income its pro rata share of investment by us in U.S. property. Subpart F income includes, among other things, interest, dividends and other types of passive investment income. Further, if we were a CFC, some or all of the gain from the sale of our stock by a U.S. 10% shareholder may be characterized as ordinary dividend income rather than capital gain and the taxation of distributions made by us to such a shareholder would be subject to special rules. The particular consequences of CFC status for a U.S. 10% shareholder cannot be determined until the last day of our taxable year on which we were a CFC. However, our status as a CFC would not affect the tax treatment of a U.S. Holder that is not a U.S. 10% shareholder. Prospective investors should consult their own tax advisors to determine whether an ownership interest in us would cause them to become a U.S. 10% shareholder of our company or any of our subsidiaries and to determine the impact of such a classification.

Passive Foreign Investment Company

Although we are unable to predict our income and the composition of our assets with certainty, based on the composition of our assets and income and the current expectations regarding the amount of the proceeds of the initial public offering, we believe that we should not be treated as a PFIC for U.S. federal income tax purposes with respect to our 2009 or 2010 taxable year and we do not intend or anticipate becoming a PFIC for any future taxable year. However, the determination of PFIC status is a factual determination that must be made annually at the close of each taxable year and depends on our current, future and projected financial data, the composition of our income and assets and, without limitation, on how quickly and to what extent we are and will be able to spend the cash and working capital raised in the initial public offering. In addition, a decrease in the

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trading price of the securities may cause us to be considered a PFIC in the current or any subsequent year. Therefore, there can be no assurances that we will not be treated as a PFIC for 2009, 2010 or any other taxable year.

A non-U.S. corporation will be treated as a PFIC for U.S. federal income tax purposes in any taxable year in which either (i) at least 75% of its gross income (including the gross income of certain 25% or more-owned corporate subsidiaries) is “passive income” or (ii) at least 50% of the value (including the assets of certain 25% or more-owned corporate subsidiaries) of its assets, including any cash and working capital that may be raised in an offering such as the initial public offering, based on an average of the quarterly values of the assets during such year, is attributable to assets that produce passive income or are held for the production of passive income. Passive income for this purpose includes, among other things, dividends, interest, royalties, rents and gains from commodities and securities transactions. Passive income does not include rents and royalties derived from the active conduct of a trade or business.

If we are a PFIC in any year during which a U.S. Holder owns the securities, such U.S. Holder may experience certain adverse tax consequences. Such U.S. Holder could be liable for additional taxes and interest charges (i) upon “excess distributions,” which include distributions received by the U.S. Holder on our securities during the year, but only to the extent that the aggregate of the distributions for the taxable year exceeds 125% of the average amount of distributions received by the U.S. Holder in the preceding three years, or (ii) upon a sale or other disposition of the securities at a gain, whether or not we continue to be a PFIC. The tax will be determined by allocating the excess distribution or recognized gain ratably to each day of the U.S. Holder’s holding period. The amount allocated to the current taxable year and any taxable year with respect to which we were not a PFIC will be taxed as ordinary income, rather than capital gain, earned in the current taxable year. The amount allocated to other taxable years will be taxed at the highest marginal rates applicable to ordinary income for such taxable years and, in addition, an interest charge will be imposed on the amount of such taxes.

With respect to U.S. Holders of ADSs, these adverse tax consequences may be avoided if the U.S. Holder is eligible to and does elect to annually mark-to-market the ADSs.

If a U.S. Holder makes a mark-to-market election with respect to the ADSs, such holder will include as ordinary income the excess, if any, of the fair market value of the ADSs at the end of each taxable year over their adjusted basis, and will be permitted an ordinary loss in respect of the excess, if any, of the adjusted basis of the ADSs over their fair market value at the end of the taxable year, but only to the extent of the net amount of previously included income as a result of the mark-to-market election. Any gain recognized on the sale or other disposition of the securities will be treated as ordinary income. The mark-to-market election is available only for “marketable stock,” which is stock that is traded in other than de minimis quantities on at least 15 days during each calendar quarter on a qualified exchange or other market, as defined in the applicable Treasury regulations. We expect the ADSs to be “marketable stock” because our ADSs will be listed on the NYSE.

Alternatively, a U.S. Holder of stock (but not warrants) in a PFIC may make a “qualified electing fund” election with respect to such PFIC to elect out of the tax treatment discussed above. A U.S. Holder that makes a valid qualified electing fund election with respect to a PFIC will include in gross income for a taxable year such holder’s pro rata share of the corporation’s earnings and profits for the taxable year. However, the qualified electing fund election is available only if the PFIC provides such U.S. Holder with certain information regarding its earnings and profits as required under applicable U.S. Treasury regulations, and we do not intend to prepare or provide the information that would entitle U.S. Holders to make a qualified electing fund election.

If we are regarded as a PFIC, a U.S. Holder of ordinary shares or ADSs must make an annual return on IRS Form 8621, reporting distributions received and gains realized with respect to these interests. The reduced tax rate for dividend income, as discussed above under “—Dividends,” is not applicable to dividends paid by a PFIC. Further, if we are regarded as a PFIC, under Code Section 1289(f), which was added to the Code on March 18, 2010, a U.S. Holder of ordinary shares or ADSs may be required to file an annual information return even if such person did not recognize gain on

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the sale of such PFIC stock received a distribution from such PFIC, or made a QEF election with respect to such PFIC.

A PFIC that is also a CFC (see “Controlled Foreign Corporation”, above) will not be treated as a PFIC with respect to certain 10% U.S. Holders. For the exception to apply, (i) the corporation much be a CFC within the meaning of section 957(a) of the Code and (ii) the U.S. Holder must be subject to the current inclusion rules of Subpart F with respect to such corporation (i.e., the U.S. Holder is a U.S. Holder is a U.S. 10% shareholder—see “Controlled Foreign Corporation”, above).

If we were to be considered a PFIC during a taxable year in which we are also considered a CFC, U.S. Holders who are U.S. 10% shareholders with respect to our securities will not be subject to the PFIC rules with respect to the same stock. The PFIC rules will however continue to apply to U.S. Holders who are not U.S. 10% shareholders of a CFC and U.S. Holders who cease to be U.S. 10% shareholders to a CFC.

Prospective investors should consult their own tax advisors regarding the U.S. federal income tax consequences of an investment in a PFIC.

Tax Consequences to Non-U.S. Holders of Ordinary Shares and Warrants

Dividends paid to a Non-U.S. Holder in respect of ADSs or ordinary shares generally will not be subject to U.S. federal income tax, unless the dividends are effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, are attributable to a permanent establishment or fixed base that such holder maintains in the United States).

In addition, a Non-U.S. Holder generally will not be subject to U.S. federal income tax on any gain attributable to a sale or other disposition of ADSs, ordinary shares or warrants unless such gain is effectively connected with its conduct of a trade or business in the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment or fixed base that such holder maintains in the United States) or the Non-U.S. Holder is an individual who is present in the United States for 183 days or more in the taxable year of sale or other disposition and certain other conditions are met (in which case, such gain from United States sources generally is subject to tax at a 30% rate or a lower applicable tax treaty rate).

Dividends and gains that are effectively connected with the Non-U.S. Holder’s conduct of a trade or business in the United States (and, if required by an applicable income tax treaty, are attributable to a permanent establishment or fixed base in the United States) generally will be subject to tax in the same manner as for a U.S. Holder and, in the case of a Non-U.S. Holder that is a corporation for U.S. federal income tax purposes, may also be subject to an additional branch profits tax at a 30% rate or a lower applicable tax treaty rate.

The U.S. federal income tax treatment of a Non-U.S. Holders’s exercise of a warrant generally will correspond to the U.S. federal income tax treatment of the exercise of a warrant by a U.S. Holder, as described under “Tax Consequences to U.S. Holders of Ordinary Shares and Warrants—Exercise of Warrants” above.

Backup Withholding and Information Reporting

Dividend payments made to U.S. Holders and proceeds paid from the sale or other disposition of their ordinary shares or ADSs may be subject to information reporting to the Internal Revenue Service and possible U.S. federal backup withholding at a current rate of 28%. Certain exempt recipients, such as corporations, are not subject to these information reporting requirements. Backup withholding will not apply to a U.S. Holder who furnishes a correct taxpayer identification number and makes any other required certification, or who is otherwise exempt from backup withholding. U.S. Holders who are required to establish their exempt status must provide IRS Form W-9 (Request for Taxpayer Identification Number and Certification).

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A Non-U.S. Holder generally may eliminate the requirement for information reporting and backup withholding by providing certification of its foreign status, under penalties of perjury, on a duly executed applicable IRS Form W-8 or by otherwise establishing an exemption.

Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a holder’s U.S. federal income tax liability. A holder may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the Internal Revenue Service in a timely manner and furnishing any required information.

Prospective investors should consult their own tax advisors as to their qualification for an exemption from backup withholding and the procedure for obtaining this exemption.

F. Dividends and Paying Agents

Not applicable.

G. Statement by Experts.

Not applicable.

H. Documents on Display

We previously filed with the Securities and Exchange Commission our registration statement on Form F-1.

We have filed this annual report on Form 20-F with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. Statements made in this annual report as to the contents of any document referred to are not necessarily complete. With respect to each such document filed as an exhibit to this annual report, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference.

We are subject to the informational requirements of the Exchange Act and file reports and other information with the Securities and Exchange Commission. Reports and other information which we filed with the Securities and Exchange Commission, including this annual report on Form 20-F, may be inspected and copied at the public reference room of the Securities and Exchange Commission at 450 Fifth Street N.W. Washington D.C. 20549.

You can also obtain copies of this annual report on Form 20-F by mail from the Public Reference Section of the Securities and Exchange Commission, 450 Fifth Street, N.W., Washington D.C. 20549, at prescribed rates. Additionally, copies of this material may be obtained from the Securities and Exchange Commission’s Internet site at http://www.sec.gov. The Commission’s telephone number is 1-800-SEC-0330.

I. Subsidiaries Information

Not applicable.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Quantitative and Qualitative Disclosures about Market Risk

Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates, and foreign currency exchange rates.

Interest rate risk

Our exposure to interest rate risk primarily relates to the interest rates for our outstanding debt and the interest income generated by excess cash, which is held primarily in interest-bearing bank deposits or investment products provided by PRC banks. The long-term loans outstanding as of

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December 31, 2011 totaled $267.0 million, relating to RMB denominated loans of $14.9 million, $32.2 million, $14.0 million, $18.6 million, $15.9 million, $25.5million,$18.6 million, $11.1million, $8.9 million, $8.7 million, $24.3 million, $16.3 million, $40.6 million, $1.1million, $5.0million, $6.2 million, $5.1 million obtained by Binglangjiang, Hengda, Xineng, Xiaopengzu, Yingchuan, Wuliting, Jiulongshan, Ruiyang, Zhougongyuan, Shapulong, Yuheng, Wangkeng, Banzhu, Jinling, Jintang, Jinwei, Jinlong respectively from several financial institutions. The average interest rate on our long-term loans for 2011 was 7.00%. Assuming the principal amount of the outstanding long-term borrowings remains approximately the same as of December 31, 2011 a 1.0% increase in each applicable interest rate would add approximately $2.7 million to our interest expense in 2011. We have not used derivative financial instruments in our investment portfolio. Interest-bearing instruments carry a degree of interest rate risk. We have not been exposed, nor do we anticipate being exposed, to material risks due to changes in market interest rates. However, our future interest income, in particular interest income on the proceeds from the initial public offering and from other equity financings, may fall short of expectations due to changes in market interest rates.

Foreign currency risk

The value of the Renminbi against the U.S. dollar and other currencies is affected by, among other things, changes in China’s political and economic condition. Since July 2005, the Renminbi has no longer been pegged to the U.S. dollar. Currently the Renminbi exchange rate versus the U.S. dollar is restricted to a rise or fall of no more than 0.5% per day and the People’s Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate. This change in policy has resulted in an appreciation of the RMB against the U.S. dollar of approximately 6.4%, 0.1%, 3.0% and 4.9% in 2008, 2009, 2010 and 2011, respectively. The Renminbi may appreciate or depreciate significantly in value against the U.S. dollar. Moreover, it is possible that in the future PRC authorities may lift restrictions on fluctuations in the Renminbi exchange rate and reduce their level of intervention in the foreign exchange market. Because substantially all of our earnings and cash assets are denominated in Renminbi and the net proceeds from our initial public offering were denominated, and we maintain our consolidated financial statements in U.S. dollars, fluctuations in the exchange rate between the U.S. dollar and the Renminbi will affect the relative purchasing power of these proceeds and our balance sheet and earnings per share. In addition, appreciation or depreciation in the value of the Renminbi relative to the U.S. dollar would affect our financial results reported in U.S. dollars without giving effect to any underlying change in our business or results of operations. Fluctuations in the Renminbi/U.S. dollar exchange rate will also affect the relative value of any dividend we reserve that will be exchanged into U.S. dollars and earnings from, and the value of, any Renminbi-denominated investments we make in the future. We have not entered into any hedging transactions that would reduce or increase our exposure to this foreign currency exchange risk. If the value of the Renminbi was to increase before we invested the proceeds from our initial public offering in assets denominated in Renminbi or to pay Renminbi-denominated expenses, the value of those U.S. dollar-denominated proceeds would be proportionally less.

Inflation

In recent years, China has not experienced significant inflation, and therefore inflation has not had a significant effect on our business. According to the National Bureau of Statistics of China, the change in the Consumer Price Index in China was 4.8%, 5.9%, -0.7%, 3.3% and 5.4% in 2007, 2008, 2009, 2010 and 2011, respectively. Based on the upward change of the Consumer Price Index in late 2007, the PRC government announced measures to restrict bank lending and investment in China in order to reduce inflationary pressures on China’s economy. The People’s Bank of China’s benchmark loan interest rate for one-year RMB denominated loans was 6.12%, 7.47%, 5.31%, 5.81% and 6.56% in 2007, 2008, 2009, 2010 and 2011, respectively.

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ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.

A. Debt securities

Not applicable.

B. Warrants and Rights

Not applicable.

C. Other securities

Not applicable.

D. American Depositary Shares

Fees and Charges Our ADS holders May Have to Pay

The Bank of New York Mellon, the depositary of our ADS program, collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deductions from cash distributions or by directly billing investors or by charging the book- entry system accounts of participants acting for them. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.

Persons depositing or withdrawing shares or ADS holders must pay:	For:
$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)	•	Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property
	•	Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates
$0.02 or less per ADS (or portion)	•	Any cash distribution made pursuant to the deposit agreement
	•	Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to registered ADS holders
	•	Depositary services
	•	Expenses of the depositary
	•	Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement)
	•	Converting foreign currency to U.S. dollars
Registration or transfer fees	Transfer and registration of shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw shares
Any charges incurred by the depositary or its agents for servicing the deposited securities	As necessary
Taxes and other governmental charges the depositary or the As necessary custodian has to pay on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxes	As necessary

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Fees and Other Payments Made by the Depositary to Us

The Bank of New York Mellon, as depositary, has agreed to reimburse us for expenses they incur that are related to establishment and maintenance expenses of the ADS program. The depositary has agreed to reimburse us for its continuing annual stock exchange listing fees. The depositary has also agreed to pay the standard out-of-pocket maintenance costs up to certain amount for the ADRs, which consist of the standard out-of-pocket legal fees and disbursements, including preparing and deposit Agreement and Form F-6. It also agreed to waive us certain value-added services fees, certain technology services fees, and certain administration and ongoing ADR holder servicing fees. There are limits on the amount of expenses for which the depositary will reimburse us, but the amount of reimbursement available to us is not necessarily tied to the amount of fees the depositary collects from investors. For the year ended December 31, 2010 and 2011, the depository reimbursed us a gross amount of $600,000 and $526,520, respectively. The depository also waived us an amount of $97,718 for the year ended December 31, 2010 and $134,970 for the year ended December 31, 2011, for certain technology services fees such as ADR insight and certain administration ADR holder servicing fees.

PART II.

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.

None of these events occurred in any of the years ended December 31, 2009, 2010 and 2011.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS.

Not applicable.

ITEM 15. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, has performed an evaluation of the effectiveness of our disclosure controls and procedures within the meaning of Rule 13a-15(e) of the Exchange Act as of the end of the period covered by this report. Based on such evaluation, our management has concluded that, as of the end of the period covered by this annual report, our disclosure controls and procedures were effective to ensure that information required to be disclosed by our company in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time period specified in the Securities and Exchange Commission rules and forms, and (ii) accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined under Rule 13a-15 of the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reports and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financials.

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management, under the supervision and with the participation of our chief executive officer and chief financial officer, conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee on Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control-Integrated Framework, our management concluded that, as of December 31, 2011, our internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP.

Our registered public accounting firm, Ernst & Young Hua Ming, has audited the effectiveness of our internal control over financial reporting as of December 31, 2011, as stated in its report, which appears on page F-3 of this annual report on Form 20-F.

Changes in Internal Control over Financial Reporting

There have been no significant changes in our internal controls over financial reporting that occurred during the period covered by this annual report on Form 20-F that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT.

Our audit committee consists of Mr. Anthony Dixon, Dr. Yong Cao and Mr. Stephen Outerbridge, each of whom we believe satisfies the “independence” requirements under current NYSE rules and Rule 10A-3 under the Securities Exchange Act of 1934, as amended. Mr. Dixon acts as the chairman of our audit committee. Our board of directors has determined that Mr. Dixon qualifies as an “audit committee financial expert” under applicable SEC rules.

ITEM 16B. CODE OF ETHICS.

Our board of directors has adopted a code of business conduct and ethics that is applicable to all of our directors, officers and employees. Our code of ethics and our code of conduct are publicly available on our website.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by Ernst & Young Hua Ming, our independent registered public accounting firm, for the periods indicated. We did not pay any other fees to our independent auditors during the periods indicated below.

	For the Year Ended December 31,
	2010			2011
	(In US $ thousands)
Audit fees(1)		$	1,807		$	1,251
Audit-related fees(2)			—			5

⁽¹⁾ Audit fees consist of fees billed associated with the annual audit, the reviews of our interim financial statements, the audit and report on the financial statements of the entities acquired by the Company. They also include the audit and review of financial statements and other assurance services rendered in connection with our initial public offering on January 25, 2010. Fees billed for those services that are normally provided by the independent auditors in connection with regulatory filings are also included.

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(2)	Audit-related fees consist of the fees paid to the independent accountants for the tax desk review for one entity.
	The policy of our audit committee is to pre-approve all audit and non-audit services provided by Ernst & Young Hua Ming, including audit services, audit-related services, tax services and other services as described above are approved by the Audit Committee prior to the commencement to services.

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.

None.

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.

None.

ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT.

Not applicable.

ITEM 16G. CORPORATE GOVERNANCE.

Differences Between the Our Current Corporate Governance Practices and the NYSE Corporate Governance Requirements Applicable to Domestic US Companies

Our American Depositary Shares are listed on the New York Stock Exchange (the “NYSE”). As such, we are subject to corporate governance requirements imposed by the NYSE. Under Section 303A of the NYSE Listed Company Manual, NYSE-listed non-US companies such as ourselves may, in general, follow their home country corporate governance practices in lieu of some of the NYSE corporate governance requirements. The Listed Company Manual requires that non-US companies disclose any significant ways in which their corporate governance practices differ from those followed by U.S. companies listed on the NYSE. We are committed to a high standard of corporate governance and we believe that our corporate governance practices and guidelines are consistent, in principal, with those required of U.S. companies listed on the NYSE.

The following summarizes one significant difference between our corporate governance practices and the NYSE standards applicable to domestic U.S. companies: while shareholders of domestic U.S. companies listed on the NYSE must be given the opportunity to approve material revisions to those plans unless certain limited exceptions apply, we are permitted to follow our home country laws regarding shareholder approval of compensation plans, and, under Cayman Islands law, such approval from shareholders is not required.

Other than noted above, currently there is no significant difference between our corporate governance practices and what the NYSE requires of domestic US companies. See “Risk Factors – As a company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the New York corporate governance listing standards. These practices may afford less protection to shareholders than they would enjoy if we complied fully with the New York Stock Exchange corporate governance listing standards.”

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PART III.

ITEM 17. FINANCIAL STATEMENTS.

We have elected to provide financial statements pursuant to Item 18.

ITEM 18. FINANCIAL STATEMENTS.

Our consolidated financial statements are included at the end of this annual report.

ITEM 19. EXHIBITS.

1.1	Amended and Restated Memorandum and Articles of Association of the Registrant (incorporated by reference to Exhibit 3.1 to our Report on Form 6-K filed with the SEC on October 1, 2010)
2.1	Form of Ordinary Share Certificate (incorporated by reference to Exhibit 4.1 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
2.2	Form of Deposit Agreement between the Registrant and the Bank of New York Mellon as depositary (incorporated by reference to Exhibit 4.2 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
2.3	Form of American depositary receipt evidencing American depositary shares (included in Exhibit 2.2)
2.4	Amended and Restated Shareholders Agreement, dated October 27, 2009, amongst the Registrant and its shareholders (incorporated by reference to Exhibit 4.4 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
2.5	Form of Unit Certificate (incorporated by reference to Exhibit 4.6 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.1	2008 Share Incentive Plan of the Registrant and form of Option Agreement (incorporated by reference to Exhibit 10.2 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.2	Amended and Restated Warrant to Purchase the Company’s Ordinary Shares by Vicis Capital Master Fund (incorporated by reference to Exhibit 4.1 to our Report on Form 6-K filed with the SEC on August 19, 2011)
4.3	Form of Indemnification Agreement between the Registrant and its directors (incorporated by reference to Exhibit 10.3 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.4	Sino-Foreign Equity Joint Venture Contract entered into by the Registrant, Zhejiang Water Resources and Hydroelectric Investment Group Co., Ltd. and Zhejiang Guangning Hydroelectric Development Co., Ltd. on November 6, 2007 (incorporated by reference to Exhibit 10.4 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.5	Contract for Transfer of Fifty Percent of the Equity Interests of Yunhe County Shapulong Hydropower Generation Co., Ltd. entered into by Yunhe County Yunhe State-Owned Assets Management Co., Ltd. and the Registrant on October 12, 2007 (incorporated by reference to Exhibit 10.5 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)

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4.6	(Intentionally left blank)
4.7	Share Transfer and Capital Increase Contract entered into by the Registrant, and Ye Jian Hua, Zhou Jian Bin and Zhejiang Dahua Construction Group Co., Ltd. on March 15, 2007 (incorporated by reference to Exhibit 10.7 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.8	Supplemental Agreement entered into by the Registrant, Ye Jian Hua, Zhou Jian Bin and Zhejiang Dahua Construction Group Co., Ltd. on March 27, 2007 (incorporated by reference to Exhibit 10.8 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.9	Share Transfer Agreement for Pingnan County Wangkeng Hydroelectric Co., Ltd. entered into by Sanming City Chenyang Hydroelectric Co., Ltd., Sanming City Fufeng Industrial Co., Ltd, Beijing Xunjing Interactive Technology Co., Ltd., Huang Shao Jian, Yu Rong Ji, Zhang Rong Bin, Sun Xiao Dong, Xie Fang Wu, Ye Chang He and the Registrant on August 9, 2008 (incorporated by reference to Exhibit 10.9 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.10	Equity Joint Venture Contract for the establishment of Pingnan County Wangkeng Hydroelectric Co., Ltd. entered into by the Registrant and Sanming City Chenyang Hydroelectric Co., Ltd. on August 10, 2008 (incorporated by reference to Exhibit 10.10 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.11	Equity Interest Transfer Contract entered into by Guangsha Construction Group Co., Ltd., Lu Chunliang and the Registrant regarding Qingtian Wuliting Hydropower Development Co., Ltd. on December 13, 2007 (incorporated by reference to Exhibit 10.11 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.12	Equity Interest Transfer Contract entered into by Zhejiang Guangsha Stock Co., Ltd., Zhejiang Guangsha Hydropower Investment Co., Ltd. and the Registrant regarding Zhejiang Province Jingning Yingchuan Hydropower Development Co., Ltd. on December 13, 2007 (incorporated by reference to Exhibit 10.12 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.13	Equity Interest Transfer Contract entered into by Guangsha Construction Group Co., Ltd., Lu Chunliang and the Registrant regarding Suichang County Jiulongshan Hydropower Development Co., Ltd. on December 13, 2007 (incorporated by reference to Exhibit 10.13 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.14	Agreement relating to the Sale and Purchase of the equity of Sunpower Asia Limited entered into by the Registrant and Sanming Ruifeng Hydropower Investment Co., Ltd. on July 11, 2008 (incorporated by reference to Exhibit 10.14 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.15	Equity Interest Transfer Contract entered into by the Registrant, Sanming Ruifeng Hydropower Investment Co., Ltd. and Yong’an Ruifeng Hydroelectric Ltd. on July 11, 2008 (incorporated by reference to Exhibit 10.15 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)

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4.16	Contract on Transfer of Ten Percent Equity Interests of Sanming Zhongyin Banzhu Hydroelectric Co., Ltd. entered into by China Hydroelectric Corporation (Hong Kong) Limited and Sanming Ruifeng Economic Technological Development Ltd. on January 30, 2009 (incorporated by reference to Exhibit 10.16 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.17	Supplemental Agreement of the Contract on Transfer of Ten Percent Equity Interests of Sanming Zhongyin Banzhu Hydroelectric Co., Ltd. entered into by Sanming Ruifeng Economic Technological Development Ltd., China Hydroelectric Corporation (Hong Kong) Limited, Sanming Ruifeng Hydropower Investment Co., Ltd. and the Registrant on January 30, 2009 (incorporated by reference to Exhibit 10.17 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.18	Joint Venture Contract Among Foreign Investors for Sanming Zhongyin Banzhu Hydroelectric Co., Ltd. entered into by the Registrant, China Hydroelectric Corporation (Hong Kong) Limited and Sunpower Asia Limited in February 2009 (incorporated by reference to Exhibit 10.18 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.19	Share Transfer Agreement for Pingnan County Yuheng Hydropower Co., Ltd. entered into by the Registrant and Fujian Province Anheng Assets Management Co., Ltd., Shanghai Yufeng Hotel Management Co., Ltd., Chen Can Ling, Wang Jiang, Zhang Rong Bin and Zhou Jian Biao on August 15, 2008 (incorporated by reference to Exhibit 10.19 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.20	Share Transfer Agreement for Pingnan County Yuanping Hydroelectric Co., Ltd. entered into by the Registrant and Lin Yun, Wu Ting Li, Zhang Yao Fang and Zhou Jian on August 15, 2008 (incorporated by reference to Exhibit 10.20 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.21	Consulting Agreement with Michael H. Best entered into on August 1, 2009† (incorporated by reference to Exhibit 10.21 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.22	Power Purchase Contract entered into by Yunnan Huabang Electric Power Development Co., Ltd. and Yunnan Dehong Electric Power Co., Ltd. on June 19, 2009 (incorporated by reference to Exhibit 10.22 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.23	Supplemental Agreement to Power Purchase and Sale Contract entered into by Yunnan Huabang Electric Power Development Co., Ltd. and Yunnan Dehong Electric Power Co., Ltd. on June 19, 2009 (incorporated by reference to Exhibit 10.23 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.24	Grid Connection and Dispatching Agreement entered into by Yunnan Dehong Electric Power Co., Ltd. and Yingjiang County Huafa Electric Power Development Co., Ltd. (formerly Yunnan Huabang Electric Power Development Co., Ltd.) on January 15, 2004 (incorporated by reference to Exhibit 10.24 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)

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4.25	Grid Connection and Dispatching Agreement entered into by Sichuan Cangxi Electric Power Co., Ltd. and Sichuan Huabang Hydroelectric Development Co., Ltd. on May 17, 2009 (incorporated by reference to Exhibit 10.25 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.26	Power Purchase and Sale Contract entered into by Sichuan Cangxi Electric Power Co., Ltd. and Sichuan Huabang Hydroelectric Development Co., Ltd. on May 16, 2009 (incorporated by reference to Exhibit 10.26 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.27	Grid Connection Economic Agreement entered into by Lishui Electric Power Bureau and Yunhe County Shapulong Hydropower Generation Co., Ltd. in October 2008 (incorporated by reference to Exhibit 10.27 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.28	Grid Connection and Dispatching Agreement for Wangkeng Hydropower Station entered into by Fujian Province Ningde Electric Power Industry Bureau and Pingnan County Wangkeng Hydroelectric Co., Ltd. on July 21, 2008 (incorporated by reference to Exhibit 10.28 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.29	Power Purchase and Sales Contract for Wangkeng Hydropower Station entered into by Fujian Province Electric Power Co., Ltd. and Pingnan County Fushun Hydroelectric Co., Ltd. on October 28, 2004 (incorporated by reference to Exhibit 10.29 to our Registration Statement on Form F- 1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.30	Grid Connection and Dispatching Agreement for Wuliting Hydropower Station entered into by Lishui Electric Power Bureau and Qingtian Wuliting Hydroelectric Development Co., Ltd. on November 20, 2008 (incorporated by reference to Exhibit 10.30 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.31	Grid Connection Economic Agreement entered into by Lishui Electric Power Bureau and Qingtian Wuliting Hydroelectric Development Co., Ltd. in November, 2007 (incorporated by reference to Exhibit 10.31 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.32	Grid Connection and Dispatching Agreement for Jingning Yingchuan Hydropower Station entered into by Lishui Electric Power Bureau and Zhejiang Province Jingning Yingchuan Hydroelectric Development Co., Ltd. on November 20, 2008 (incorporated by reference to Exhibit 10.32to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.33	Grid Connection Economic Agreement entered into by Lishui Electric Power Bureau and Zhejiang Province Jingning Yingchuan Hydroelectric Development Co., Ltd. in November 2007 (incorporated by reference to Exhibit 10.3 to our Registration Statement on Form F-1 (file no. 333- 163558), as amended, initially filed with the SEC on December 8, 2009)

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4.34	Intent Agreement of Conformity of Power Purchase and Supply in Rongping Supply Area entered into by Fujian Province Pingnan County Power Supply Co., Ltd., Fujian Province (Pingnan) Rongping Chemical Industry Co., Ltd., Pingnan County Hengli Hydroelectric Co., Ltd. and Pingnan County Yuheng Hydropower Co., Ltd. on August 31, 2007 (incorporated by reference to Exhibit 10.34 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.35	Grid Connection and Dispatching Agreement for Pingnan Yuanping Hydropower Station of Fujian Province entered into by Fujian Province Pingnan County Power Supply Co., Ltd. and Pingnan County Yuheng Hydropower Co., Ltd. on December 26, 2008 (incorporated by reference to Exhibit 10.35 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.36	Power Purchase and Sale Contract for old Yuanping Hydropower Station entered into by Fujian Province Pingnan County Power Supply Co., Ltd. and Pingnan County Yuheng Hydropower Co., Ltd. in December 2008 (incorporated by reference to Exhibit 10.36 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.37	Grid Connection and Dispatching Agreement for Yuanping Technological Upgrading Hydropower Station of Fujian Province entered into by Fujian Province Pingnan County Power Supply Co., Ltd. and Pingnan County Yuanping Hydroelectric Co., Ltd. on December 26, 2008 (incorporated by reference to Exhibit 10.37 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.38	Power Purchase and Sale Contract for Technological Upgrading Project of Yuanping Hydropower Station entered into by Fujian Province Pingnan County Power Supply Co., Ltd. and Pingnan County Yuanping Hydroelectric Co., Ltd. in December 2008 (incorporated by reference to Exhibit 10.38 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.39	Grid Connection and Dispatching Agreement for Sanming Zhongyin Banzhu Hydroelectric Co., Ltd. entered by Fujian Province Sanming Power Industry Bureau and Sanming Zhongyin Banzhu Hydroelectric Co., Ltd. on September 22, 2006 (incorporated by reference to Exhibit 10.39 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.40	Grid Connection and Power Purchase Agreement entered into by Fujian Province Sanming Power Industry Bureau and Sanming Zhongyin Banzhu Hydroelectric Co., Ltd. on April 30, 1997 (incorporated by reference to Exhibit 10.40 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.41	Share Transfer Contract for Longquan Ruiyang Cascade II Hydroelectric Co., Ltd. entered into by Zhejiang Province Jingning Yingchuan Hydroelectric Development Co., Ltd., Guangdong Qingneng Power Generation Group Co., Ltd. and Yao Lin Fu on August 11, 2009 (incorporated by reference to Exhibit 10.41 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)

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4.42	Share Transfer Contract for Thirteen Percent of the Equity Interests of Yunhe County Shapulong Hydropower Generation Co., Ltd. entered into by Zhejiang Province Water Resources and Hydroelectric Investment Group Co., Ltd. and the Zhejiang Province Jingning Yingchuan Hydroelectric Development Co., Ltd. on June 29, 2009 (incorporated by reference to Exhibit 10.42 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.43	Share Transfer Contract for Yunhe County Shapulong Hydropower Generation Co., Ltd. entered into by Zhejiang Guangning Hydroelectric Development Co., Ltd. and the Zhejiang Province Jingning Yingchuan Hydroelectric Development Co., Ltd. on July 22, 2009 (incorporated by reference to Exhibit 10.43 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.44	Grid Connection Economic Agreement entered into by Longquan Ruiyang Cascade II Hydroelectric Co., Ltd. and Lishui Power Industry Bureau in April 2007 (incorporated by reference to Exhibit 10.44 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.45	Grid Connection and Dispatching Agreement entered into by Longquan Ruiyang Cascade II Hydroelectric Co., Ltd. and Lishui Power Industry Bureau, Dispatching and Communication Center, on October 18, 2003 (incorporated by reference to Exhibit 10.45 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.46	Renminbi Loan Agreement (Long/Medium Term) entered into by Qingtian Wuliting Hydroelectric Development Co., Ltd. and Bank of China Limited, Lishui City Dayang Sub-branch, on March 19, 2009 (incorporated by reference to Exhibit 10.46 to our Registration Statement on Form F- 1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.47	Medium/Long-Term Renminbi Loan Contract entered into by Pingnan County Wangkeng Hydroelectric Co., Ltd. and Industrial Bank Co., Ltd., Ningde Branch, on March 24, 2009 (incorporated by reference to Exhibit 10.47 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.48	Renminbi Loan Contract (Medium/Long Term) entered into by Sanming Zhongyin Banzhu Hydroelectric Co., Ltd. and Bank of China Limited, Fujian Province Branch, on June 16, 2009 (incorporated by reference to Exhibit 10.48 to our Registration Statement on Form F-1 (file no. 333- 163558), as amended, initially filed with the SEC on December 8, 2009)
4.49	Loan Contract entered into by Suichang County Jiulongshan Hydroelectric Development Co., Ltd. and Agricultural Bank of China, Lishui City Branch, on June 19, 2009 (RMB9.0 million) (incorporated by reference to Exhibit 10.49 to our Registration Statement on Form F-1 (file no. 333- 163558), as amended, initially filed with the SEC on December 8, 2009)
4.50	Loan Contract entered into by Suichang County Jiulongshan Hydroelectric Development Co., Ltd. and Agricultural Bank of China, Lishui City Branch, on June 19, 2009 (RMB216.0 million) (incorporated by reference to Exhibit 10.50 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)

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4.51	Memorandum of Understandings entered into by Bank of China, Fujian Branch, and China Hydroelectric Corporation in July 2009 (incorporated by reference to Exhibit 10.51 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.52	Employment Agreement entered into by Beijing A.B.C. Investment Consulting Co., Ltd. and Fang Chen on July 1, 2008 (incorporated by reference to Exhibit 10.52 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.53	Employment Agreement entered into by Beijing A.B.C. Investment Consulting Co., Ltd. and You-Su Lin on July 1, 2008 (incorporated by reference to Exhibit 10.53 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.54	Employment Agreement entered into by Beijing A.B.C. Investment Consulting Co., Ltd. and Gan Wu on July 1, 2008 (incorporated by reference to Exhibit 10.54 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.55	Employment Agreement entered into by China Hydroelectric Corporation and Mary E. Fellows on January 1, 2009 (incorporated by reference to Exhibit 10.55 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.56	Employment Agreement entered into by China Hydroelectric Corporation and “James” Tie Li on January 1, 2009 (incorporated by reference to Exhibit 10.56 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.57	Employment Agreement entered into by China Hydroelectric Corporation and John D. Kuhns on January 1, 2009 (incorporated by reference to Exhibit 10.57 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.58	Employment Agreement entered into by Beijing A.B.C. Investment Consulting Co., Ltd. and Xinchun Lian on October 1, 2008, as amended on January 13, 2009 (incorporated by reference to Exhibit 10.58 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.59	Labor Contract entered into by Beijing A.B.C. Investment Consulting Co., Ltd. and Shu Zhang on May 12, 2009 (incorporated by reference to Exhibit 10.59 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.60	Labor Contract entered into by Beijing A.B.C. Investment Consulting Co., Ltd. and Gang Meng on April 7, 2008, as amended on November 1, 2008† (incorporated by reference to Exhibit 10.60 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.61	Capital Increase Agreement for Henan Wuyue Storage Power Generation Co., Ltd. entered into by China Hydroelectric Corporation and Henan Lan Tian Group Co., Ltd. on October 22, 2009 (incorporated by reference to Exhibit 10.61 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.62	Form of Warrant to Purchase Ordinary Shares of the Registrant by Broadband Capital Management LLC to be dated the closing of the initial public offering (incorporated by reference to Exhibit 10.62 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)

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4.63	Warrant to Purchase Units Consisting of Ordinary Shares and Warrants to Purchase Ordinary Shares of the Registrant by Morgan Joseph & Co. Inc. dated November 10, 2006 (283,333 Units) (incorporated by reference to Exhibit 10.63 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.64	Warrant to Purchase Units Consisting of Ordinary Shares and Warrants to Purchase Ordinary Shares of the Registrant by Morgan Joseph & Co. Inc. dated November 10, 2006 (550,000 Units) (incorporated by reference to Exhibit 10.64 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.65	Warrant to Purchase Common Shares of the Registrant by JMG Capital Partners, L.P. dated September 28, 2007 (incorporated by reference to Exhibit 10.65 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.66	Warrant to Purchase Common Shares of the Registrant by JMG Triton Offshore Fund, Ltd. dated September 28, 2007 (incorporated by reference to Exhibit 10.66 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.67	Warrant to Purchase Preferred Shares or Ordinary Shares, as Applicable, of the Registrant by Morgan Joseph & Co. Inc. dated January 28, 2008 (incorporated by reference to Exhibit 10.67 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.68	Letter Agreement between the Registrant and Vicis Capital Master Fund dated April 11, 2007 (incorporated by reference to Exhibit 10.68 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.69	Form of warrant agreement (incorporated by reference to Exhibit 10.69 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
4.70	Share Transfer Contract for Yingjiang County Qingrui Husahe Power Co., Ltd. dated as of March 2, 2010 between Dehong Qinrui (Group) Power Investment and Development Co., Ltd. and Yunnan Huabang Electric Power Development Co., Ltd. (incorporated by reference to Exhibit 4.70 of our Annual Report on Form 20-F filed with the SEC on May 24, 2010)
4.71	Share Transfer Contract for Fugong County Hengda Hydropower Generation Co., Ltd. (Aluhe Hydropower Station and Zilenghe Hydropower Station) dated as of April 14, 2010 between Yunnan Minfa Hydroelectric Development Group Co., Ltd., Xiamen Minrui Investment Co., Ltd. and Fujian Huabang Hydroelectric Investment Co., Ltd. (incorporated by reference to Exhibit 4.71 of our Annual Report on Form 20-F filed with the SEC on May 24, 2010)
4.72	Share Transfer Contract for Fugong Xineng Power Development Co., Ltd. (Latudihe Hydropower Station) dated as of April 14, 2010 between Yunnan Minhe Hydroelectric Investment Co., Ltd. and Fujian Huabang Hydroelectric Investment Co., Ltd. (incorporated by reference to Exhibit 4.72 of our Annual Report on Form 20-F filed with the SEC on May 24, 2010)
4.73	Supplemental Agreement on the Power Purchase and Sale Contract for the Year of 2010 (Contract Number: De Dian Si 2010-011) for Binglangjiang Power Station and Binglangjiang Expanded Power Station dated as of March 31, 2010 between Yunnan Huabang Electric Power Development Co., Ltd. and Dehong Power Supply Co., Ltd. (incorporated by reference to Exhibit 4.73 of our Annual Report on Form 20-F filed with the SEC on May 24, 2010)

174

4.74	Supplemental Agreement on the Power Purchase and Sale Contract for the Year of 2010 (Contract Number: 2010-009) for Husahe Cascade III & VI Power Station and Mangxian Power Station (incorporated by reference to Exhibit 4.74 of our Annual Report on Form 20-F filed with the SEC on May 24, 2010)
4.75	Power Purchase Agreement (contract Number: De Dian Si 2009-079) (Binglangjiang expanded Power Station) dated as of November 4, 2009 between Dehong Power Supply Co., Ltd. and Yunnan Huabang Electric Power development Co. (incorporated by reference to Exhibit 4.75 of our Annual Report on Form 20-F filed with the SEC on May 24, 2010)
4.76	Supplemental Agreement on the Power Purchase and Sale Contract for the Year of 2009 (Contract Number: De Dian Si 2009-079) (Binglangjiang expanded Power Station) dated as of November 4, 2009 between Dehong Power Supply Co., Ltd. and Yunnan Huabang Electric Power Development Co., Ltd. (incorporated by reference to Exhibit 4.76 of our Annual Report on Form 20-F filed with the SEC on May 24, 2010)
4.77	Grid Connection Agreement (Serial Number: De Dian Ru Wang No. 2009-003) dated as of July 16, 2009 between Yunnan Dehong Electric Power Co., Ltd. and Yunnan Huabang Electric Power Development Co., Ltd. (incorporated by reference to Exhibit 4.77 of our Annual Report on Form 20-F filed with the SEC on May 24, 2010)
4.78	Share Transfer Contract for Luquan Xiaopengzu Power Generation Co., Ltd. dated as of April 23, 2010 among Fujian Huabang Hydroelectric Investment Co., Ltd. and various individual parties thereto (incorporated by reference to Exhibit 4.78 of our Annual Report on Form 20-F filed with the SEC on May 24, 2010)
4.79	Shaowu City Qianling Hydroelectric Station Grid Connection Agreement dated as of October 19, 2000 between Shaowu Power Supply Bureau (hereinafter “Party A”) and Shaowu City Jinling Power Generation Co., Ltd. (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.80	Shaowu Power Supply Bureau Grid Connection and Dispatching Agreement dated December 20, 2002 between Fujian Province Shaowu Power Supply Bureau and Shaowu City Jinling Power Generation Co., Ltd. (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.81	Shaowu Power Supply Bureau Grid Connection and Dispatching Agreement dated December 15, 2003 between Fujian Province Shaowu Power Supply Bureau and Shaowu City Jinling Power Generation Co., Ltd. (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.82	Shaowu Power Supply Bureau Grid Connection and Dispatching Agreement dated October 15, 2004 between Fujian Province Shaowu Power Supply Bureau and Shaowu City Jintang Hydroelectric Co., Ltd. (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.83	Shaowu Power Supply Bureau Grid Connection and Dispatching Agreement dated October 15, 2004 between Fujian Province Shaowu Power Supply Bureau and Shaowu City Jinlong Hydroelectric Co., Ltd. (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.84	Power Purchase and Sale Contract for Jinwei Hydropower Station dated as of January 2007 between Fujian Province Nanping Electric Power Industry Bureau and Shaowu City Jinwei Hydroelectric Co., Ltd. (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.85	Power Purchase and Sale Contract for Dongguan Hydropower Station dated as of March 2007 between Fujian Province Shaowu Power Supply Bureau and Shaowu City Jinling Power Generation Co., Ltd. (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.86	Power Purchase and Sale Contract for Qianling Hydropower Station dated as of March 2007 between Fujian Province Shaowu Power Supply Bureau and Shaowu City Jinling Power Generation Co., Ltd. (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)

175

4.87	Power Purchase and Sale Contract for Jinjiu Hydropower Station dated as of March 2007 between Fujian Province Shaowu Power Supply Bureau and Shaowu City Jinling Power Generation Co., Ltd. (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.88	Power Purchase and Sale Contract for Jinlong Hydropower Station dated as of March 2007 between Fujian Province Shaowu Power Supply Bureau and Shaowu City Jinlong Hydroelectric Co., Ltd. (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.89	Power Purchase and Sale Contract for Sanming Banzhu Power Station entered into by Fujian Province Electric Power Co., Ltd. and Sanming Zhongyin Banzhu Hydroelectric Co., Ltd. on August 18, 2008 (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.90	Grid Connection Economic Agreement entered into by Lishui Electric Power Bureau and Qingtian Wuliting Hydroelectric Development Co., Ltd. in October 2008 (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.91	Grid Connection Economic Agreement entered into by Lishui Electric Power Bureau and Zhejiang Province Jingning Yingchuan Hydroelectric Development Co., Ltd. in October 2008 (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.92	Grid Connection and Dispatching Agreement dated as of November 2008 between Lishui Electric Power Industry Bureau and Yunhe County Shapulong Hydropower Generation Co., Ltd. (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.93	Power Purchase and Sale Contract for Jintang Hydropower Station dated as of December 2008 between Fujian Province Shaowu Power Supply Bureau and Shaowu City Jintang Hydroelectric Co., Ltd. (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.94	Employment Agreement dated as of October 1, 2008 entered into by Beijing A.B.C. Investment Consulting Co., Ltd. and Hong Zhang (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.95	Grid Connection and Dispatching Agreement of Zhougongyuan Cascade I Power Station dated as of April 21, 2009 between Lishui Electric Power Industry Bureau and Suichang County Jiulongshan Hydroelectric Development Co., Ltd. (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.96	Grid Connection and Dispatching Agreement of Zhougongyuan Cascade II Power Station dated as of April 21, 2009 between Lishui Electric Power Industry Bureau and Suichang County Jiulongshan Hydroelectric Development Co., Ltd. (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.97	Grid Connection and Dispatching Agreement of Zhougongyuan Cascade III Power Station dated as of April 21, 2009 between Lishui Electric Power Industry Bureau and Suichang County Jiulongshan Hydroelectric Development Co., Ltd. (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.98	Power Purchase and Sale Contract dated as of June 19, 2009 between Yunnan Dehong Power Co., Ltd. and Yingjiang County Qinrui Husahe Hydropower Co., Ltd. (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.99	Power Purchase and Sale Contract dated as of January 1, 2010 between Yunnan Nujiang Grid Co., Ltd. and Fugong Xineng Power Development Co., Ltd. (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.100	Power Purchase and Sale Contract dated as of January 1, 2010 between Yunnan Nujiang Grid Co., Ltd. and Fugong County Hengda Hydroelectric Development Co., Ltd. (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.101	Power Purchase and Sale Contract of Xiaopengzu Power Plant for the Year of 2011 dated as of March 2011 between Yunnan Grid Company and Luquan Xiaopengzu Power Generation Co., Ltd. (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.102	Labor Contract entered into by Beijing A.B.C. Investment Consulting Co., Ltd. and Lianghong Tu on April 6, 2010 (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.103	Grid Connection and Dispatching Agreement dated as of May 14, 2010 between Yunnan Nujiang Grid Co., Ltd. and Fugong Xineng Power Development Co., Ltd. (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.104	Grid Connection and Dispatching Agreement dated as of May 14, 2010 between Yunnan Nujiang Grid Co., Ltd. and Fugong County Hengda Hydroelectric Development Co., Ltd. (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)

176

4.105	Power Purchase and Sale Contract entered into by Sichuan Cangxi Electric Power Co., Ltd. and Sichuan Huabang Hydroelectric Development Co., Ltd. on May 17, 2010 (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.106	Grid Connection and Dispatching Agreement entered into by Sichuan Cangxi Electric Power Co., Ltd. and Sichuan Huabang Hydroelectric Development Co., Ltd. on May 18, 2010 (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.107	Labor Contract entered into by Beijing A.B.C. Investment Consulting Co., Ltd. and You Li on June 17, 2010 (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.108	Power Purchase and Sales Contract for Wangkeng Hydropower Station entered into by Fujian Province Electric Power Co., Ltd. and Pingnan County Wangkeng Hydroelectric Co., Ltd. on June 28, 2010 (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.109	Fixed Assets Loan Contract dated as of July 15, 2010 between Fugong Xineng Power Development Co., Ltd. and Bank of China Limited, Fujian Branch (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.110	Power Purchase and Sale Contract dated as of July 16, 2010 between Lishui Electric Power Industry Bureau and Suichang County Zhougongyuan Hydroelectric Development Co., Ltd. (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.111	Power Purchase and Sale Contract dated as of July 16, 2010 between Lishui Electric Power Industry Bureau and Suichang County Jiulongshan Hydroelectric Development Co., Ltd. (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.112	Grid Connection and Dispatching Agreement dated as of August 11, 2010 between Dehong Power Supply Co., Ltd. and Yunnan Huabang Electric Power Development Co., Ltd. (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.113	Grid Connection and Dispatching Agreement for Husahe III Power Station dated as of August 11, 2010 between Dehong Power Supply Co., Ltd. and Yingjiang County Qinrui Husahe Hydropower Co., Ltd. (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.114	Grid Connection and Dispatching Agreement for Husahe IV Power Station dated as of August 11, 2010 between Dehong Power Supply Co., Ltd. and Yingjiang County Qinrui Husahe Hydropower Co., Ltd. (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.115	Grid Connection and Dispatching Agreement for Mangxian Power Station dated as of August 11, 2010 between Dehong Power Supply Co., Ltd. and Yingjiang County Qinrui Husahe Hydropower Co., Ltd. (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.116	Agricultural Bank of China Fixed Assets Loan Contract and Installment Repayment Agreement dated as of August 26, 2010 between Yunnan Huabang Electric Power Development Co., Ltd. and Agricultural Bank of China, Yingjiang County Sub-branch (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.117	Share Purchase Agreement for Shaowu City Jinling Power Generation Co., Ltd. dated as of September 28, 2010 among Fujian Huabang Hydroelectric Investment Co., Ltd., Fujian Taiyu Investment (Group) Co., Ltd., Shaowu City Fengyi Power Development Co., Ltd. and Jianyang City Xinguang Power Development Co., Ltd. (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.118	Grid Connection and Dispatching Agreement for Wangkeng Hydropower Station entered into by Fujian Province Electric Power Co., Ltd. Ningde Electric Power Industry Bureau and Pingnan County Wangkeng Hydroelectric Co., Ltd. on September 30, 2010 (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.119	Share Transfer Contract for Jinping Kanghong Hydroelectric Development Co., Ltd. dated as of November 6, 2010 among Luquan Xiaopengzu Power Generation Co., Ltd. and various individual parties thereto (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)

177

4.120	Transfer Contract Regarding 10% of the Equity of Pingnan County Wangkeng Hydroelectric Co., Ltd. dated as of November 22, 2010 between Sanming City Chenyang Hydroelectric Co., Ltd. and Fujian Huabang Hydroelectric Investment Co., Ltd. (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.121	Fixed Assets Loan Contract dated as of December 24, 2010 between Pingnan County Yuheng Hydroelectric Co., Ltd. and Bank of China Limited, Fujian Branch (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.122	Supplemental Agreement on the Power Purchase and Sale Contract for the Year of 2011 (Contract Number: De Dian Si 2011-079) (Binglangjiang expanded Power Station) dated as of December 29, 2010 between Dehong Power Supply Co., Ltd. and Yunnan Huabang Electric Power Development Co., Ltd. (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.123	Grid Connection and Dispatching Agreement for Jinwei Hydropower Plant dated as of December 24, 2010 between Fujian Province Electric Power Co., Ltd. Nanping Electric Power Industry Bureau and Shaowu City Jinwei Hydroelectric Co., Ltd. (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.124	Supplemental Agreement on Power Purchase and Sale Contract for the Year of 2011 dated as of December 29, 2010 between Dehong Power Supply Co., Ltd. and Yingjiang County Qinrui Husahe Hydropower Co., Ltd. (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.125	Supplemental Agreement to Power Purchase and Sale Contract entered into by Yunnan Huabang Electric Power Development Co., Ltd. and Yunnan Dehong Electric Power Co., Ltd. on December 29, 2010 (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.126	Fixed Assets Loan Contract dated as of December 31, 2010 between Fugong County Hengda Hydroelectric Development Co., Ltd. and Bank of China Limited, Yunnan Branch (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.127	Labor Contract entered into by Beijing A.B.C. Investment Consulting Co., Ltd. and Jin Cao on 1 January 2011 (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.128	Fixed Assets Loan Contract dated as of January 7, 2011 between Fugong County Hengda Hydroelectric Development Co., Ltd. and Bank of China Limited, Fujian Branch (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.129	Grid Connection and Dispatching Agreement dated as of March 2010 between Yunnan Grid Company and Luquan Xiaopengzu Power Generation Co., Ltd. (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.130	Grid Connection and Dispatching Agreement dated as of September 30, 2010 between Fujian Province Electric Power Co., Ltd. Sanming Power Industry Bureau and Sanming Zhongyin Banzhu Hydroelectric Co., Ltd. (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.131	Employment Agreement dated August 1, 2010 entered into between Beijing A.B.C. Investment Consulting Co., Ltd. and Jianbin Zhou (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
4.132	Employment Agreement entered into between Beijing A.B.C. Investment Consulting Co., Ltd. and Huakang Xiong (incorporated by reference to exhibit with identical exhibit number of our Annual Report on Form 20-F filed with the SEC on April 4, 2011)
8.1	Subsidiaries of the Registrant
10.1	Warrant Exercise Agreement dated August 19, 2011 between China Hydroelectric Corporation and Vicis Capital Master Fund (incorporated by reference to Exhibit 4.1 to our Report on Form 6-K filed with the SEC on August 19, 2011)
10.2	Translation of Share Transfer Agreement for Pingnan County Yuanping Hydroelectric Co., Ltd. dated December 3, 2011 between China Hydroelectric Corporation and Mr. You Lang Fei.
11.1	Code of Business Conduct and Ethics of the Registrant (incorporated by reference to Exhibit 99.1 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
12.1	CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12.2	CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

178

13.1	CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
13.2	CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
15.1	Calculation of Effective Tariff Rate, Effective Utilization Rate and Weighted Average Effective Utilization Rate
15.2	Consent of Independent Registered Public Accounting Firm

179

SIGNATURE

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

Date: April 27, 2012

CHINA HYDROELECTRIC CORPORATION

/s/ John D. Kuhns

Name: John D. Kuhns
Title: Chairman and Chief Executive Officer

180

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

CHINA HYDROELECTRIC CORPORATION

	PAGE
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets as of December 31, 2010 and 2011		F-4
Consolidated Statements of Operations for the Years Ended December 31, 2009, 2010 and 2011		F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2009, 2010 and 2011		F-7
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2009, 2010 and 2011		F-9
Notes to the Consolidated Financial Statements		F-12

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of
China Hydroelectric Corporation

          We have audited the accompanying consolidated balance sheets of China Hydroelectric Corporation as of December 31, 2011 and 2010, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

          We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

          In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of China Hydroelectric Corporation at December 31, 2011 and 2010, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2011, in conformity with U.S. generally accepted accounting principles.

          The accompanying financial statements have been prepared assuming that China Hydroelectric Corporation will continue as a going concern. As more fully described in Note 2(a), the Company has a net working capital deficiency which raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to this matter also are described in Note 2(a). The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

          We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), China Hydroelectric Corporation’s internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated April 27, 2012 expressed an unqualified opinion thereon.

/s/Ernst & Young Hua Ming
Beijing, People’s Republic of China
April 27, 2012

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of
China Hydroelectric Corporation

          We have audited China Hydroelectric Corporation’s internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). China Hydroelectric Corporation’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

          We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

          A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

          Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

          In our opinion, China Hydroelectric Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on the COSO criteria.

          We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of China Hydroelectric Corporation as of December 31, 2011 and 2010, and the related consolidated statements of operations, shareholder’s equity, and cash flows for each of the three years in the period ended December 31, 2011 and our report dated April 27, 2012 expressed an unqualified opinion thereon and included an explanatory paragraph regarding China Hydroelectric Corporation’s ability to continue as a going concern.

/s/Ernst & Young Hua Ming
Beijing, People’s Republic of China
April 27, 2012

F-3

CHINA HYDROELECTRIC CORPORATION

CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2010 AND 2011
(Amounts in thousands of U.S. dollars (“US$”), except for number of shares and per share data)

		December 31,
	Notes	2010			2011
A S S E T S
Current assets:
Cash and cash equivalents			33,457			8,391
Accounts receivable (net of allowance for doubtful accounts of US$nil as of December 31, 2010 and 2011)	4		4,359			4,246
Deferred tax assets	13		1,260			1,799
Amounts due from related parties (net of allowance for doubtful accounts of US$nil and US$1,334 as of December 31, 2010 and 2011)	26		5,950			—
Prepayments and other current assets (net of provision for impairment allowance of US$nil and US$714 as of December 31, 2010 and 2011)	5		8,221			2,999
Assets classified as held-for-sale	6		—			21,693
Total current assets			53,247			39,128
Non-current assets:
Property, plant and equipment, net	7		583,686			580,964
Land use rights, net	10		48,944			50,666
Intangible assets, net	8		6,249			5,788
Goodwill	9		136,635			135,651
Deferred tax assets	13		986			1,767
Other non-current assets			709			951
Total non-current assets			777,209			775,787
TOTAL ASSETS			830,456			814,915
L I A B I L I T I E S  A N D  S H A R E H O L D E R S ’  E Q U I T Y
Current liabilities:
Accounts payable			5,551			5,251
Short-term loans	14		17,742			20,881
Current portion of long-term loans	14		60,798			51,651
Amounts due to related parties	26		12,866			12,174
Deferred tax liabilities	13		—			536
Accrued expenses and other current liabilities	11		66,763			75,002
Warrant liabilities			—			440
Liabilities directly associated with the assets classified as held-for-sale	6		—			11,920
Total current liabilities			163,720			177,855
Non-current liabilities:
Long-term loans	14		224,297			215,382
Deferred tax liabilities	13		25,350			26,563
Other non-current liabilities	15		106			237
Total non-current liabilities			249,753			242,182
Total liabilities			413,473			420,037
Shareholders’ equity
China Hydroelectric Corporation shareholders’ equity:
Ordinary shares (par value US$0.001 per share, 400,000,000 shares authorized as of December 31, 2010 and 2011; 153,295,516 and 161,989,097 shares issued and outstanding as of December 31, 2010 and 2011)	18		153			162
Additional paid-in capital			495,652			509,499
Accumulated other comprehensive income			22,922			42,968
Accumulated deficit			(112,840	)		(158,229	)
Total China Hydroelectric Corporation shareholders’ equity			405,887			394,400
Noncontrolling interests			11,096			478
Total shareholders’ equity			416,983			394,878
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY			830,456			814,915

The accompanying notes are an integral part of these consolidated financial statements.

F-4

CHINA HYDROELECTRIC CORPORATION

CONSOLIDATED STATEMENTS OF
OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011
(Amounts in thousands of U.S. dollars (“US$”), except for number of shares and per share data)

		For the Years Ended December 31,
	Notes	2009			2010			2011
Revenues			34,327			63,280			57,544
Cost of revenues			(16,458	)		(23,970	)		(32,545	)
Gross profit			17,869			39,310			24,999
Operating expenses:
General and administrative expenses (including share-based compensation expenses of US$571, US$3,615 and US$10,479 in 2009, 2010 and 2011)			(9,003	)		(19,307	)		(29,028	)
Total operating expenses			(9,003	)		(19,307	)		(29,028	)
Operating income (loss)			8,866			20,003			(4,029	)
Interest income			510			1,190			102
Interest expense	21		(13,359	)		(15,167	)		(26,550	)
Changes in fair value of warrant liabilities	17		(13,793	)		365			951
Exchange loss			(23	)		(855	)		(851	)
Share of losses in an equity investee			(70	)		—			—
Impairment loss on goodwill	9		—			—			(11,388	)
Impairment loss on long-lived assets	7		—			—			(11,590	)
Other (loss) income, net	23		(225	)		122			(348	)
(Loss) income before income tax expense			(18,094	)		5,658			(53,703	)
Income tax expense	12		(1,433	)		(3,557	)		(1,549	)
Net (loss) income from continuing operations			(19,527	)		2,101			(55,252	)
Net income (loss) from discontinued operations (net of income tax (expense) benefit of US$(59), US$197 and US$(79) in 2009, 2010 and 2011)	6		99			1,884			(38	)
Net (loss) income			(19,428	)		3,985			(55,290	)
Less:
Net loss (income) attributable to noncontrolling interests			32			(243	)		9,901
Net (loss) income attributable to China Hydroelectric Corporation shareholders			(19,396	)		3,742			(45,389	)
- Continuing operations			(19,495	)		1,858			(45,351	)
- Discontinued operations			99			1,884			(38	)

F-5

CHINA HYDROELECTRIC CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011 (Continued)
(Amounts in thousands of U.S. dollars (“US$”), except for number of shares and per share data)

			For the Years Ended December 31,
	Notes		2009			2010			2011
Less:
Cumulative dividends on Series A convertible redeemable preferred shares		16		(19,836	)		(1,989	)		—
Cumulative dividends on Series B convertible redeemable preferred shares		16		(14,412	)		(1,412	)		—
Cumulative dividends on Series C convertible redeemable preferred shares		16		(356	)		(162	)		—
Accretion of beneficial conversion feature on Series A convertible redeemable preferred shares		16		—			(6,990	)		—
Accretion of beneficial conversion feature on Series B convertible redeemable preferred shares		16		—			(5,040	)		—
Accretion of beneficial conversion feature on Series C convertible redeemable preferred shares		16		—			(222	)		—
Changes in redemption value of Series C convertible redeemable preferred shares		16		(1,872	)		—			—
Loss attributable to ordinary shareholders				(55,872	)		(12,073	)		(45,389	)
Net (loss) income attributable to ordinary shareholders per share		19		(3.59	)		(0.08	)		(0.29	)
—From continuing operations – basic and diluted				(3.59	)		(0.09	)		(0.29	)
—From discontinued operations – basic and diluted				0.00			0.01			(0.00	)
Weighted average number of ordinary shares used in computing:
Net (loss) income attributable to ordinary shareholders per share – basic and diluted		19		15,541,666			143,253,450			156,505,076
Net (loss) income attributable to ordinary shareholders per ADS (equivalent to three ordinary shares)		19		—			(0.25	)		(0.87	)
—From continuing operations – basic and diluted				—			(0.29	)		(0.87	)
—From discontinued operations – basic and diluted				—			0.04			(0.00	)
Weighted average number of ADS used in computing:
Net (loss) income attributable ordinary shareholders per ADS – basic and diluted				—			47,751,150			52,168,358

The accompanying notes are an integral part of these consolidated financial statements.

F-6

CHINA HYDROELECTRIC CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011
(Amounts in thousands of U.S. dollars (“US$”), except for number of shares and per share data)

	For the Years Ended December 31,
	2009			2010			2011
Cash flows from operating activities:
Net (loss) income		(19,428	)		3,985			(55,290	)
Adjustments to reconcile net (loss) income to net cash generated from operating activities:
Depreciation of property, plant and equipment		11,645			15,834			21,984
Amortization of land use rights		754			935			1,144
Amortization of intangible assets		182			161			213
Impairment loss on goodwill		—			—			11,388
Impairment loss on long-lived assets		—			—			11,590
Deferred income taxes		795			(656	)		(485	)
Share of losses in an equity investee		70			—			—
Changes in fair value of warrant liabilities		13,793			(365	)		(951	)
Amortization of debt issuance costs		23			19			19
Accretion of guarantee fee payable		10			—			—
Accretion of guarantee deposit		45			391			—
Amortization of unfavorable contract obligations		(660	)		(586	)		—
Amortization of government grant		—			(6	)		(3	)
Share-based compensation expense		571			3,615			10,479
Loss from disposal of property, plant and equipment		276			73			266
Remeasurement gain on pre-existing interest in an equity investee at acquisition-date fair value		(105	)		—			—
Exchange loss		23			855			851
Provision for impairment allowance on prepayments and other current assets		—			—			696
Provision for allowance for doubtful accounts on amounts due from a related party		—			—			1,302
Net pension cost recognized		—			—			173
Changes in operating assets and liabilities:
Accounts receivable		(3,674	)		5,426			242
Amounts due from an equity investee		(125	)		—			—
Amounts due from related parties		13			(1,487	)		—
Prepayments and other current assets		304			3,703			310
Other non-current assets		969			(138	)		(344	)
Accounts payable		(1	)		690			(42	)
Amounts due to related parties		(2	)		—			—
Accrued expenses and other current liabilities		(4,265	)		10,089			(1,903	)
Other non-current liabilities		—			584			5
Net cash generated from operating activities		1,213			43,122			1,644
Cash flows from investing activities:
Acquisition of subsidiaries, net of cash acquired		(32,283	)		(43,213	)		(19,330	)
Advances to an acquired business prior to the acquisition date		—			(43,548	)		—
Cash deposit for potential acquisitions		—			(9,475	)		(696	)
Acquisition of an intangible asset		(1,025	)		—			—
Acquisition of land use rights		—			(223	)		—
Acquisition of property, plant and equipment		(1,757	)		(2,927	)		(1,490	)
Proceeds from disposal of property, plant and equipment		190			3			112
Payment to contractors for construction projects		(13,380	)		(4,223	)		(3,330	)
Loans to an equity investee		(3,937	)		—			—
Repayment of loans by an equity investee		3,486			—			—
Net cash used in investing activities		(48,706	)		(103,606	)		(24,734	)

F-7

CHINA HYDROELECTRIC CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011 (Continued)
(Amounts in thousands of U.S. dollars (“US$”), except for number of shares and per share data)

	For the Years Ended December 31,
	2009			2010			2011
Cash flows from financing activities:
Purchase of subsidiary shares from noncontrolling interests		(2,490	)		—			(1,204	)
Proceeds from issuance of convertible redeemable preferred shares		20,000			—			—
Proceeds from loans from related parties		—			2,247			1,263
Proceeds from short-term loans		4,391			8,327			23,066
Proceeds from long-term loans		129,234			23,805			45,823
Proceeds from initial public offering		—			96,000			—
Proceeds from exercised warrants		—			—			10,036
Proceeds from loans from third parties		—			—			17,456
Payment of deferred initial public offering costs		(7,142	)		(10,012	)		—
Payment of convertible redeemable preferred shares issuance costs		(1,872	)		—			—
Payment of debt issuance costs		(299	)		—			—
Repayment of short-term bank loans		(6,082	)		(7,206	)		(20,889	)
Repayment of long-term bank loans		(95,287	)		(50,717	)		(66,955	)
Repayment of loans from third parties		—			—			(10,637	)
Net cash provided by (used in) financing activities		40,453			62,444			(2,041	)
Net (decrease) increase in cash and cash equivalents		(7,040	)		1,960			(25,131	)
Effect of changes in exchange rate on cash and cash equivalents		(35	)		(121	)		76
Cash and cash equivalents at the beginning of the year		38,693			31,618			33,457
Cash and cash equivalents at the end of the year		31,618			33,457			8,402
Supplementary disclosure of cash flow information
Interest paid		14,051			15,812			22,928
Income taxes paid		1,015			1,261			2,333
Non-cash activities:
Non-cash portion of deferred initial public offering costs		1,640			1,036			—
Convertible redeemable preferred shares issued as dividends		34,604			3,563			—
Conversion of convertible redeemable preferred shares into ordinary shares		—			119,754			—
Non-cash portion of acquisition of subsidiaries		720			11,333			1,825
Non-cash portion of acquisition of property, plant and equipment		1,072			2,741			9,595
Non-cash portion of disposal of property, plant and equipment		—			—			20

The accompanying notes are an integral part of these consolidated financial statements.

F-8

CHINA HYDROELECTRIC CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011
(Amounts in thousands of U.S. dollars (“US$”), except for number of shares and per share data)

	China Hydroelectric Corporation shareholders
	Number of ordinary shares		Ordinary shares		Additional paid-in capital			Accumulated other comprehensive income		Accumulated deficit			Noncontrolling interests			Total shareholders’ equity (deficit)			Comprehensive income (loss)
Balance at December 31, 2008		15,541,666		16		38,241			10,819		(44,895	)		750			4,931			—
Cumulative dividends on Series A convertible redeemable preferred shares		—		—		—			—		(19,836	)		—			(19,836	)		—
Cumulative dividends on Series B convertible redeemable preferred shares		—		—		—			—		(14,412	)		—			(14,412	)		—
Cumulative dividends on Series C convertible redeemable preferred shares		—		—		—			—		(356	)		—			(356	)		—
Changes in redemption value of Series C convertible redeemable preferred shares		—		—		—			—		(1,872	)		—			(1,872	)		—
Purchase of subsidiary shares from noncontrolling interests		—		—		(2,561	)		—		—			71			(2,490	)		—
Share-based compensation expenses		—		—		571			—		—			—			571			—
Foreign currency translation adjustment		—		—		—			246		—			—			246			246
Net loss		—		—		—			—		(19,396	)		(32	)		(19,428	)		(19,428	)
Balance at December 31, 2009		15,541,666		16		36,251			11,065		(100,767	)		789			(52,646	)		(19,182	)

The accompanying notes are an integral part of these consolidated financial statements.

F-9

CHINA HYDROELECTRIC CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011 (Continued)
(Amounts in thousands of U.S. dollars (“US$”), except for number of shares and per share data)

	China Hydroelectric Corporation shareholders
	Number of ordinary shares		Ordinary shares		Additional paid-in capital		Accumulated other comprehensive income		Accumulated deficit			Noncontrolling interests		Total shareholders’ equity (deficit)			Comprehensive income (loss)
Balance at December 31, 2009		15,541,666		16		36,251		11,065		(100,767	)		789		(52,646	)		—
Issuance of ordinary shares upon initial public offering		18,000,000		18		65,083		—		—			—		65,101			—
Issuance of warrants (Note 17)		—		—		7,200		—		—			—		7,200			—
Reclassification of warrant liabilities upon initial public offering (Note 17)		—		—		13,968		—		—			—		13,968			—
Cumulative dividends on Series A convertible redeemable preferred shares		—		—		—		—		(1,989	)		—		(1,989	)		—
Cumulative dividends on Series B convertible redeemable preferred shares		—		—		—		—		(1,412	)		—		(1,412	)		—
Cumulative dividends on Series C convertible redeemable preferred shares		—		—		—		—		(162	)		—		(162	)		—
Conversion of Series A convertible redeemable preferred shares into ordinary shares		63,016,780		62		186,467		—		—			—		186,529			—
Conversion of Series B convertible redeemable preferred shares into ordinary shares		50,795,457		51		150,304		—		—			—		150,355			—
Conversion of Series C convertible redeemable preferred shares into ordinary shares		5,941,613		6		20,512		—		—			—		20,518			—
Beneficial conversion feature on Series A convertible redeemable preferred shares upon conversion into ordinary shares		—		—		6,990		—		—			—		6,990			—
Accretion of beneficial conversion feature on Series A convertible redeemable preferred shares		—		—		—		—		(6,990	)		—		(6,990	)		—
Beneficial conversion feature on Series B convertible redeemable preferred shares upon conversion into ordinary shares		—		—		5,040		—		—			—		5,040			—
Accretion of beneficial conversion feature on Series B convertible redeemable preferred shares		—		—		—		—		(5,040	)		—		(5,040	)		—
Beneficial conversion feature on Series C convertible redeemable preferred shares upon conversion into ordinary shares		—		—		222		—		—			—		222			—
Accretion of beneficial conversion feature on Series C convertible redeemable preferred shares		—		—		—		—		(222	)		—		(222	)		—
Noncontrolling interest in acquired subsidiaries		—		—		—		—		—			10,064		10,064			—
Share-based compensation expenses		—		—		3,615		—		—			—		3,615			—
Foreign currency translation adjustment		—		—		—		11,857		—			—		11,857			11,857
Net loss		—		—		—		—		3,742			243		3,985			3,985
Balance at December 31, 2010		153,295,516		153		495,652		22,922		(112,840	)		11,096		416,983			15,842

F-10

CHINA HYDROELECTRIC CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011 (Continued)
(Amounts in thousands of U.S. dollars (“US$”), except for number of shares and per share data)

	China Hydroelectric Corporation shareholders
	Number of ordinary shares		Ordinary shares		Additional paid-in capital			Accumulated other comprehensive income			Accumulated deficit			Noncontrolling interests			Total shareholders’ equity (deficit)			Comprehensive income (loss)
Balance at December 31, 2010		153,295,516		153		495,652			22,922			(112,840	)		11,096			416,983			—
Reclassification of warrants from equity to liability		—		—		(1,391	)		—			—			—			(1,391	)		—
Exercise of warrants		8,693,581		9		9,666			—			—			—			9,675			—
Purchase of subsidiary shares from noncontrolling interests		—		—		(4,907	)		—			—			(1,032	)		(5,939	)		—
Share-based compensation expenses		—		—		10,479			—			—			—			10,479			—
Net losses not recognized immediately as a component of net periodic pension cost		—		—		—			(33	)		—			—			(33	)		(33	)
Foreign currency translation adjustment		—		—		—			20,079			—			315			20,394			20,394
Net loss		—		—		—			—			(45,389	)		(9,901	)		(55,290	)		(55,290	)
Balance at December 31, 2011		161,989,097		162		509,499			42,968			(158,229	)		478			394,878			(34,929	)

F-11

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

1. ORGANIZATION AND PRINCIPAL ACTIVITIES

          China Hydroelectric Corporation (the “Company”) was incorporated on July 10, 2006 under the laws of the Cayman Islands to serve as a vehicle for the acquisition of equity interests in companies with hydroelectric assets in the People’s Republic of China (the “PRC” or “China”). The Company and its subsidiaries (the “Group”) are principally engaged in the operation and development of hydroelectric assets and the generation of hydroelectric power in the PRC.

          On January 25, 2010, the Company completed an initial public offering (“IPO”), whereby the Company issued 6,000,000 units of securities at US$16.00 per unit. Each unit consists of one American Depository Share (“ADS”) priced at US$14.80 and one warrant priced at US$1.20. Each ADS represents three ordinary shares and each warrant entitles the holder to purchase three ordinary shares for an exercise price of US$15.00. The IPO yielded aggregate gross proceeds of US$96,000. The proceeds, net of applicable expenses, are used to acquire hydroelectric operating companies and assets and to develop new hydroelectric power projects in China, for working capital and for general corporate purposes.

          The Company does not conduct any substantive operation of its own and conducts its primary business operations through its subsidiaries. During the years ended December 31, 2009, 2010 and 2011, the Company made three, six and one acquisitions of hydroelectric entities, respectively. Details of the acquisition made in 2011 are disclosed in Note 3.

          As of December 31, 2011, the Company’s subsidiaries included the following entities:

	Place of Incorporation	Date of Establishment/ Acquisition	Percentage of Ownership	Principal Activities
Subsidiaries
Beijing A.B.C. Investment Consulting Co., Ltd. (“ABC”)	PRC	April 19, 2007	100%	Provision of general and administrative services to group companies
Yunnan Huabang Electric Power Development Co., Ltd. (“Binglangjiang”)	PRC	April 25, 2007	100%	Operation and development of hydroelectric assets
Sichuan Huabang Hydroelectric Development Co., Ltd. (“Liyuan”)	PRC	May 21, 2007	100%	Operation and development of hydroelectric assets
Zhejiang Province Jingning Yingchuan Hydroelectric Development Co., Ltd. (“Yingchuan”)	PRC	January 31, 2008	100%	Operation and development of hydroelectric assets
Qingtian Wuliting Hydroelectric Development Co., Ltd. (“Wuliting”)	PRC	January 31, 2008	100%	Operation and development of hydroelectric assets
Suichang County Jiulongshan Hydroelectric Development Co., Ltd. (“Jiulongshan”)	PRC	January 31, 2008	100%	Operation and development of hydroelectric assets
China Hydroelectric Corporation (Hong Kong) Limited (“CHC HK”)	Hong Kong (“HK”)	June 25, 2008	100%	Investment holding company
Pingnan County Yuheng Hydropower Co., Ltd. (“Yuheng”)	PRC	October 21, 2008	100%	Operation and development of hydroelectric assets

F-12

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

	Place of Incorporation	Date of Establishment/ Acquisition	Percentage of Ownership	Principal Activities
Pingnan County Wangkeng Hydroelectric Co., Ltd. (“Wangkeng”)	PRC	October 21, 2008	100%	Operation and development of hydroelectric assets
Pingnan County Yuanping Hydroelectric Co., Ltd. (“Yuanping”)	PRC	October 22, 2008	100%	Operation and development of hydroelectric assets
Sanming Zhongyin Banzhu Hydroelectric Co., Ltd. (“Banzhu”)	PRC	October 22, 2008	100%	Operation and development of hydroelectric assets
Sun Power Asia Limited (“Sunpower”)	HK	November 14, 2008	100%	Investment holding company
Yunhe County Shapulong Hydropower Generation Co., Ltd. (“Shapulong”)	PRC	August 3, 2009	100%	Operation and development of hydroelectric assets
Zhejiang Longquan Ruiyang Cascaded II Hydropower Plant Co., Ltd. (“Ruiyang”)	PRC	August 20, 2009	100%	Operation and development of hydroelectric assets
Suichang County Zhougongyuan Hydroelectric Development Co., Ltd. (“Zhougongyuan”)	PRC	December 3, 2009	100%	Operation and development of hydroelectric assets
Fujian Huabang Hydroelectric Investment Co., Ltd. (“Fujian Huabang”)	PRC	January 14, 2010	100%	Investment holding
Henan Wuyue Storage Power Generation Co., Ltd. (“Wuyue”)	PRC	March 23, 2010	79%	Development of hydroelectric assets
Yingjiang County Qinrui Husahe Power Co., Ltd. (“Husahe”)	PRC	April 19, 2010	100%	Operation and development of hydroelectric assets
Fugong County Hengda Electric Power Development Co., Ltd. (“Hengda”)	PRC	June 22, 2010	100%	Operation and development of hydroelectric assets
Fugong County Xineng Electric Power Development Co., Ltd. (“Xineng”)	PRC	August 16, 2010	100%	Operation and development of hydroelectric assets
Luquan Xiaopengzu Power Generation Co., Ltd. (“Xiaopengzu”)	PRC	September 8, 2010	100%	Operation and development of hydroelectric assets
Shaowu City Jinling Power Generation Co., Ltd. (“Jinling”)	PRC	December 30, 2010	100%	Operation and development of hydroelectric assets
Shaowu City Jinlong Hydropower Co., Ltd. (“Jinlong”)	PRC	December 30, 2010	55%	Operation and development of hydroelectric assets
Shaowu City Jintang Hydropower Co., Ltd. (“Jintang”)	PRC	December 30, 2010	74%	Operation and development of hydroelectric assets
Shaowu City Jinwei Hydropower Co., Ltd. (“Jinwei”)	PRC	December 30, 2010	74%	Operation and development of hydroelectric assets
Jinping Kanghong Hydroelectric Development Co., Ltd., (“Dazhaihe”)	PRC	April 10, 2011	100%	Operation and development of hydroelectric assets

F-13

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of presentation

          The accompanying consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“US GAAP”). Certain comparative amounts have been reclassified to conform with the current year’s presentation.

          The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern.

          As of December 31, 2011, the Group had working capital deficiency of US$138,727. This factor raises substantial doubt about the Company’s ability to continue as a going concern. The continued operation of the Group is dependent upon the Group’s ability in raising additional capital, obtaining additional financing and improving future operating and financial results. Therefore, the Company may not be able to realize its assets and discharge its liabilities in the normal course of business. In view of this, management has taken steps to actively pursue additional capital and financing. On December 3, 2011, the Company entered into an equity purchase and sale agreement with a third-party to dispose Yuanping, a wholly-owned subsidiary of the Company, for cash consideration of US$11,276 (RMB71,050) (Note 6). The disposal was completed on March 2, 2012. In addition, the Group received gross proceeds of US$11,744 through long-term borrowings from banks and other non-financial institutions between January 1, 2012 and March 31, 2012.

          While the Company strongly believes that its capital resources will be sufficient in the near term, there is no assurance that sufficient funds required during the next year or thereafter will be generated from operations or that funds will be available from external sources such as debt or equity financings or other potential sources. The lack of additional capital resulting from the inability to generate cash flow from operations or to raise capital from external sources would force the Company to substantially curtail or cease operations and would, therefore, have a material adverse effect on its business. Furthermore, there is no assurance that any additional financing, if available, will be obtainable on terms satisfactory or attractive to the Company.

          The accompanying consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded assets or the amounts and classification of liabilities that might have been necessary should the Company not be able to continue in existence as a going concern.

(b) Principles of consolidation

          The consolidated financial statements include the financial statements of the Company and its subsidiaries. The results of subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtained control and continued to be consolidated until the date that such control ceases.

          Investments in entities that the Company does not control, but has the ability to exercise significant influence over operating and financial policies, are accounted for under the equity method. Investments in entities in which the Company does not have the ability to exercise significant influence are accounted for under the cost method. All significant intercompany transactions and balances have been eliminated upon consolidation.

          For business combinations with the acquisition date on or after January 1, 2009, the Group accounted for the transactions in accordance with ASC sub-topic 805-10 (“ASC 805-10”), Business Combinations: Overall. ASC 805-10 requires the acquiring entity in a business combination to recognize all assets acquired and liabilities assumed in the transaction, establishes the acquisition date fair value as the measurement objective for all assets acquired and liabilities assumed, and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination. During the measurement period, which shall not exceed one year from the acquisition date, the Company recognizes adjustments to the provisional amounts of acquisition-date fair value and the resulting goodwill for new information obtained as if the accounting for the business combination had been completed at the acquisition date. The comparative information for prior periods presented in the consolidated financial statements is revised as needed, including making any change in depreciation, amortization or other income effects recognized in completing the initial accounting.

F-14

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

          For a component of the Group that either has been disposed of or is classified as held-for-sale, the Group accounted for the result of operations of the component as a discontinued operation in accordance with ASC sub-topic 205-20 (“ASC 205-20”), Presentation of Financial Statements when (1) the operations and cash flows of the component have been or will be eliminated from the ongoing operations of the Group as a result of the disposal transaction; and (2) the Group will not have any significant continuing involvement in the operations of the component after the disposal transaction.

          The Company accounted for the purchase of additional ownership in its subsidiary from noncontrolling interests as an equity transaction in accordance with ASC sub-topic 810-10 (“ASC 810-10”), Consolidation: Overall. The carrying amount of the noncontrolling interest is adjusted to reflect the change in the Group’s ownership interest in the subsidiary. Any difference between the fair value of the consideration received or paid and the amount by which the noncontrolling interest is adjusted is recognized in additional paid-in capital.

(c) Use of estimates

          The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities at the balance sheet dates and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

(d) Fair value measurement

          Financial instruments include cash and cash equivalents, accounts receivable, certain other current assets, accounts payable, certain other liabilities, short-term loans, long-term loans, convertible redeemable preferred shares and warrants. The carrying values of these financial instruments, other than long-term loans, convertible redeemable preferred shares, and warrants, approximate their fair values due to their short-term maturities. The warrants issued in connection with the convertible notes and the IPO were recorded in equity at the fair value as determined on the day of issuance (Note 17). The convertible redeemable preferred shares were initially recorded at issue price net of issuance costs. The Company recognizes changes in the redemption value immediately as they occur and adjusts the carrying value of the convertible redeemable preferred shares to equal the redemption value at the end of each reporting period. All of the convertible redeemable preferred shares were automatically converted into ordinary shares on January 25, 2010, the date of the Company’s IPO (Note 16). The warrants issued in connection with the convertible redeemable preferred shares were recorded as a liability at fair value as determined on the day of issuance and subsequently adjusted to the fair value at each reporting date (Note 17). Upon the closing of the Company’s IPO, these warrants issued in connection with the convertible redeemable preferred shares were reclassified from liability to equity at the fair value immediately prior to such reclassification (Note 17). During the year ended December 31, 2011, certain warrants were reclassified from equity to liability upon modification of terms (Note 17). These amended warrants were recorded as liabilities at fair value on the day of modification and subsequently adjusted to the fair-value at each reporting date. The Group, with the assistance of independent third party valuation firms, determined the fair values of the convertible redeemable preferred shares and warrants.

          The carrying values of long-term loans approximate their fair values due to the fact that the interest rates on these loans are reset each year based on prevailing market interest rates.

          The Group applied the provisions of ASC sub-topic 820-10 (“ASC 820-10”), Fair Value Measurements and Disclosures: Overall, in measuring fair value. ASC 820-10 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.

          ASC 820-10 establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

          Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

          Level 2—Include other inputs that are directly or indirectly observable in the marketplace.

          Level 3—Unobservable inputs which are supported by little or no market activity.

          The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

F-15

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

          ASC 820-10 describes three main approaches to measure the fair value of assets and liabilities: (1) market approach; (2) income approach and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace an asset.

          In accordance with ASC 820-10, the Group measures the fair value of money market funds included in cash equivalents using the market approach based on quoted market prices. The warrant liabilities were valued using the income approach based on inputs that are unobservable in the market (Level 3).

          All assets and liabilities measured at fair value on a recurring basis as of December 31, 2011 are summarized below:

	Quoted price in active market for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	US$		US$		US$
Money market funds in cash equivalent		807		—		—
Warrant liabilities (Note 17)		—		—		440
		807		—		440

          The following table presents reconciliation of warrant liabilities measured at fair value on a recurring basis using significant unobservable inputs for year ended December 31, 2011:

	Warrant liabilities
	US$
Balance as of December 31, 2010		—
Reclassification of Amended Warrants from equity to liability (Note 17)		1,391
Unrealized gains		(951	)
Balance as of December 31, 2011		440

          Unrealized gains of US$951 for the year ended December 31, 2011 were recorded in “changes in fair value of warrant liabilities” in the consolidated statements of operations.

          All assets and liabilities measured at fair value on a nonrecurring basis as of December 31, 2011 are summarized below:

	Quoted price in active market for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total loss
	US$		US$		US$
Construction in progress		—		—		—		(11,590)
Goodwill		—		—		135,651		(11,388)
		—		—		135,651		(22,978)

          In accordance with ASC 360-10, construction in progress of Wuyue with a carrying amount of US$11,590 was written down to its fair value of zero, resulting in an impairment charge of US$11,590, which was included in the statements of operations for the year ended December 31, 2011 (Note 7).

          In accordance with ASC 350-20, goodwill with a carrying amount of US$147,039 was written down to its implied fair value of US$135,651, resulting in an impairment charge of US$11,388, which was included in the statements of operations for the year ended December 31, 2011 (Note 9).

(e) Foreign currency

          The Company determined its functional currency to be the US$ while its subsidiaries determine their functional currency based on the criteria of ASC sub-topic 830-10 (“ASC 830-10”), Foreign Currency Matters: Overall. All of the Company’s subsidiaries determined their functional currency to be their respective local currency, except for CHC HK and Sunpower which determined their functional currency to be the US$. The Company uses the US$ as its reporting currency.

          Each entity in the Group maintains its financial records in its own functional currency. Transactions denominated in foreign currencies are measured at the exchange rates prevailing on the transaction dates. Monetary assets and liabilities denominated in foreign currencies are remeasured at the exchange rates prevailing at the balance sheet date. Exchange gains and losses are included in the consolidated statements of operations. Non-monetary items that are measured in terms of historical cost in a foreign currency are remeasured using the exchange rates at the dates of the initial transactions.

          The assets and liabilities of the Company’s subsidiaries are translated into the reporting currency of the Company at the exchange rates prevailing at the balance sheet date. The statements of operations of the Company’s subsidiaries are translated into the reporting currency of the Company at the weighted average exchange rates for the year. The resulting translation gains (losses) are recorded in accumulated other comprehensive income as a component of shareholders’ equity.

F-16

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

          For the purpose of the consolidated statements of cash flows, cash flows of the Company’s subsidiaries are translated into the reporting currency of the Company at the exchange rates prevailing on the dates of the cash flows. Frequently recurring cash flows of the Company’s subsidiaries, which arise throughout the year, are translated into the reporting currency of the Company at the weighted average exchange rates for the year.

(f) Cash and cash equivalents

          Cash and cash equivalents include cash on hand and short-term deposits with original maturity of three months or less at the date of purchase. None of the Group’s cash and cash equivalents is restricted as to withdrawal and use.

(g) Accounts receivable

          Accounts receivables are carried at net realizable value. In evaluating the collectability of receivable balances, the Group considers many factors, including the aging of the balance, the customer’s payment history, its current credit-worthiness and current economic trends. An estimate for doubtful accounts is made when collection of the full amount is no longer probable. Accounts receivable are written off after all collective efforts have ceased.

(h) Investment in equity investee

          Investments in entities in which the Company can exercise significant influence but does not own a majority equity interest or control are accounted for using the equity method of accounting under ASC sub-topic 323-10, (“ASC 323-10”), Investments—Equity Method and Joint Ventures: Overall, and included as investment in equity investees in the balance sheets. Under the equity method, the Company’s proportionate share of each equity investee’s net income or loss is included as share of income (losses) in equity investees in the statements of operations.

          The difference between the cost of the equity investee and the amount of the underlying equity in the net assets of the equity investee is recognized as equity method goodwill and included as part of the Company’s investment in equity investees in the balance sheets. The Company evaluated the investment in equity investee for impairment under ASC 323-10. An impairment loss on the investment in equity investee is recognized in the statements of operations when the decline in value is determined to be other-than-temporary.

(i) Property, plant and equipment

          Property, plant and equipment are recorded at cost less accumulated depreciation. The depreciable amount of an item of property, plant and equipment is its cost less its estimated residual value, if any. The residual value is calculated by taking the price such an asset would fetch at the reporting date, with the assumption that it was already in the condition it will be in at the end of its useful life. Depreciation is recorded on a straight-line basis over the following estimated useful lives:

Dams and reservoirs	30-49 years
Buildings	8-50 years
Machinery	1-30 years
Transportation equipment	1-11 years
Electronic equipment and others	1-15 years

          For property, plant and equipment acquired through a business combination, depreciation is recorded on a straight-line basis over their respective remaining estimated useful lives. The useful lives, residual values and methods of depreciation are reviewed at each reporting date and adjusted prospectively, if appropriate.

          All direct and indirect costs that are related to the construction of property, plant and equipment and incurred before the assets are ready for their intended use are capitalized as construction in progress. Construction in progress is transferred to specific property, plant and equipment accounts and commences depreciation when these assets are ready for their intended use.

          Interest costs are capitalized if they are incurred during the acquisition, construction or production of a qualifying asset and such costs could have been avoided if expenditures for the assets have not been made. Capitalization of interest costs commences when the activities to prepare the asset are in progress and expenditures and borrowing costs are being incurred. Interest costs are capitalized until the assets are ready for their intended use.

F-17

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

          Repair and maintenance costs are charged to expense when incurred, whereas the cost of renewals and betterment that extend the useful life of fixed assets are capitalized as additions to the related assets. Retirement, sale and disposal of assets are recorded by removing the cost and accumulated depreciation, with any resulting gain or loss reflected in the consolidated statements of operations.

(j) Goodwill and intangible assets

          Goodwill represents the excess of the purchase price over the amounts assigned to the fair value of the assets acquired and the liabilities assumed of acquired businesses. ASC sub-topic 350-10 (“ASC 350-10”), Intangibles—Goodwill and Other: Overall, requires that goodwill be tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired. The Group assigns and assesses goodwill for impairment at the reporting unit level at each reporting date. The Group determines that each reporting unit is identified at the component level, which is one level below the operating segment.

          The performance of the impairment test involves a two-step process. The first step of the impairment test involves comparing the fair value of the reporting unit with its carrying amount, including goodwill. Fair value is primarily determined through the income approach by computing the future discounted cash flows expected to be generated by the reporting unit and is dependent on a number of significant entity specific assumptions, including plant utilization rate, electricity sales volumes and tariffs, costs of production, capital expenditures, working capital changes and the discount rate. The discount rate is commensurate with the risk inherent in the projected cash flows and reflects the rate of return required by an investor in the current economic conditions. For reporting units to be disposed of subsequent to the reporting date, the market approach is used where estimates of prices reasonably expected to be realized from the sale of the reporting units are used to determine the fair value of each reporting unit.

           If the carrying value exceeds the fair value, goodwill may be impaired. If this occurs, the Group performs the second step of the goodwill impairment test to determine the amount of impairment loss. The fair value of the reporting unit is allocated to its assets and liabilities in a manner similar to a purchase price allocation in order to determine the implied fair value of the reporting unit goodwill. This implied fair value is then compared with the carrying amount of the reporting unit goodwill, and if it is less, the Group would then recognize an impairment loss.

          The Group recognized goodwill impairment loss of US$nil, US$nil and US$11,388 for the years ended December 31, 2009, 2010 and 2011, respectively (Note 9).

          Intangible assets are carried at cost less accumulated amortization. Intangible assets acquired in a business combination are recognized initially at fair value at the date of acquisition. Intangible assets with a finite useful life are amortized using the straight-line method over the estimated economic life of the intangible assets. The estimated useful life for the intangible assets as of December 31, 2011 is as follows:

Development right of Binglangjiang Phase II	30 years
Water use right of Wanquan Power Generation Co., Ltd.	30 years
Dam use right of Dongguan	40 years

          The Group reviews and adjusts the carrying value of the intangible assets if facts and circumstances suggest the intangible assets may be impaired (Note 2(m)). The Group assessed and concluded that there was no impairment for intangible assets in any of the years presented.

(k) Land use rights

          The land use rights represent the amounts paid and relevant costs incurred for the right to use land in the PRC and are recorded at purchase cost less accumulated amortization. Amortization is provided on a straight-line basis over the terms of the respective land use rights agreements, which are 50 years. For land use rights acquired through a business combination, amortization is recorded on a straight-line basis over their respective remaining estimated useful lives, which range from 41 to 50 years.

(l) Asset retirement obligations

          ASC sub-topic 410-20 (“ASC 410-20”), Asset Retirement Obligations, requires companies to record the present value of obligations associated with the retirement of tangible long-lived assets in the period in which it is incurred. The value of the liability is capitalized as part of the carrying amount of the related long-lived asset. Over time, accretion of the liability is recognized as an operating expense and the capitalized cost is depreciated over the expected useful life of the related asset. The Group’s asset retirement obligations relate primarily to the restoration of leased lands under land use rights granted by the local government to their original condition. Asset retirement obligations as of December 31, 2010 and 2011 were insignificant.

F-18

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

(m) Impairment of long-lived assets

          The Group evaluates its long-lived assets, including property, plant and equipment, land use rights and intangible assets with finite lives, for impairment whenever events or changes in circumstances, such as a significant adverse change to market conditions that will impact the future use of the assets, indicate that the carrying amount of an asset may not be recoverable in accordance with ASC sub-topic 360-10 (“ASC 360-10”), Property, Plant, and Equipment: Overall. When these events occur, the Group assesses the recoverability of long-lived assets by comparing the carrying amount of the assets to the expected future undiscounted cash flows resulting from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flow is less than the carrying amount of the assets, the Group recognizes an impairment loss based on the excess of the carrying amount of the assets over their fair value. Fair value is generally determined by discounting the cash flows expected to be generated by the assets, when the market prices are not readily available. The Group recognized impairment loss on long-lived assets of US$nil, US$nil and US$11,590 for the years ended December 31, 2009, 2010 and 2011, respectively.

(n) Derivative instruments

          ASC sub-topic 815-10 (“ASC 815-10”), Derivatives and Hedging: Overall, requires all contracts which meet the definition of a derivative to be recognized in the consolidated financial statements as either assets or liabilities and recorded at fair value. Changes in the fair value of derivative financial instruments are either recognized periodically in income/loss or in shareholders’ equity as a component of other comprehensive income depending on the use of the derivative and whether it qualifies for hedge accounting. Changes in fair values of derivatives not qualified as hedges are reported in the consolidated statements of operations. The estimated fair values of derivative instruments are determined at discrete points in time based on the relevant market information. These estimates are calculated with reference to the market rates using industry standard valuation techniques.

(o) Comprehensive income (loss)

          Comprehensive income is defined as the change in shareholders’ equity of the Group during a period from transactions and other events and circumstances excluding transactions resulting from investments by owners and distributions to owners. Comprehensive income (loss) is reported in the consolidated statements of shareholders’ equity. Accumulated other comprehensive income (loss) of the Group includes the cumulative foreign currency translation adjustments and net losses not recognized immediately as a component of net periodic pension cost of a defined benefit plan.

(p) Revenue recognition

          The Group’s revenue is derived from the sale of electricity. Revenues are recognized when the following four criteria are met as prescribed by ASC sub-topic 605-10 (“ASC 605-10”), Revenue Recognition: Overall: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the seller’s price to the buyer is fixed or determinable, and (iv) collectability is reasonably assured. The Group considers the terms of each arrangement to determine the appropriate accounting treatment. Revenue is generally earned and recognized upon transmission of electricity to the power grid controlled and owned by the respective regional or provincial grid companies. For transactions in which electricity has been transmitted to the power grid without a fixed or determinable unit price per kWh while the tariff is pending approval of the regional or provincial pricing bureau, cash received in exchange for the transmission of electricity to the power grid controlled by the respective regional or provincial grid companies has been recorded as customer deposits until such time the price becomes fixed and determinable. When the price becomes fixed and determinable, all or a portion of the customer deposits will be recognized as revenue. The Group does not defer the related cost of revenues, which is charged to expense as incurred. No customer deposits were recognized as of December 31, 2010 and 2011. The Group has not offered any discounts or rebates to its customers nor does it provide for refunds in its sales contracts with customers.

          The Company’s subsidiaries are subject to withholding value-added tax (“VAT”) on the revenues earned in the PRC. The applicable rate of VAT is 6% for small hydroelectric power projects with a total installed capacity of 50 megawatts or less and 17% for large hydroelectric power projects with a total installed capacity of over 50 megawatts. For the year ended December 31, 2009, the lower VAT rate of 6% was applied to the hydroelectric power projects of Binglangjiang, Liyuan, Yingchuan, Wuliting, Yuheng, Shapulong, Ruiyang and Yuanping and the VAT rate of 17% was applied to the hydroelectric power projects of Banzhu, Wangkeng, Jiulongshan and Zhougongyuan. For the years ended December 31, 2010 and 2011, the lower VAT rate of 6% was applied to the hydroelectric power projects of Binglangjiang, Liyuan, Yingchuan, Wuliting, Yuheng, Yuanping, Jiulongshan, Zhougongyuan, Shapulong, Ruiyang, Husahe, Hengda, Xineng, Xiaopengzu, Jinling, Jinlong, Jintang and Jinwei, and the VAT rate of 17% was applied to the hydroelectric power projects of Banzhu and Wangkeng. VAT on revenues earned from the sale of electricity by the Group to its customers for the years ended December 31, 2009, 2010 and 2011 were US$3,742, US$5,728 and US$4,583, respectively. The Group has recognized revenues net of VAT in the consolidated statements of operations.

F-19

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

(q) Cost of revenues

          Cost of revenues consists primarily of depreciation expense of hydroelectric power projects and related operating costs and overhead expenses directly attributable to the production of electricity.

(r) Leases

          In accordance with ASC sub-topic 840-10 (“ASC 840-10”), Lease: Overall, leases are classified at the inception date as either a capital lease or an operating lease. For the lessee, a lease is a capital lease if any of the following conditions exist: (i) ownership is transferred to the lessee by the end of the lease term, (ii) there is a bargain purchase option, (iii) the lease term is at least 75% of the property’s estimated remaining economic life or (iv) the present value of the minimum lease payments at the beginning of the lease term is 90% or more of the fair value of the leased property to the lessor at the inception date. A capital lease is accounted for as if there was an acquisition of an asset and incurrence of an obligation at the inception of the lease. All other leases are accounted for as operating leases wherein rental payments are expensed on a straight-line basis over the lease periods.

          The Group has no capital leases for any of the years presented.

(s) Income taxes

          The Group follows the liability method of accounting for income taxes in accordance with ASC sub-topic 740-10 (“ASC 740-10”), Income Taxes: Overall. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities, net operating loss carry forwards and credits, using enacted tax rates that will be in effect for the period in which the differences are expected to reverse. The Group records a valuation allowance against the amount of deferred tax assets if based on the weight of available evidence, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rate is recognized in the consolidated statements of operations in the period that includes the enactment date.

          The Company accounts for uncertainty in income taxes in accordance with ASC 740-10. Interests and penalties arising from underpayment of income taxes are computed in accordance with the related PRC tax law. The amount of interest expenses is computed by applying the applicable statutory rate of interest to the difference between the tax position recognized and the amount previously taken or expected to be taken in a tax return. Interest recognized from the accounting for uncertainty in income taxes is classified in the financial statements as interest expenses, while penalties recognized from the accounting for uncertainty in income taxes are classified in the financial statements as other expenses.

          The Group recognizes in its financial statements the impact of a tax position if a tax return position or future tax position is “more likely than not” to prevail, which is defined as a likelihood of more than fifty percent of being sustained upon audit, based on the technical merits of the tax position. Tax positions that meet the “more likely than not” threshold are measured, using a probability weighted approach, at the largest amount of tax benefit that has a greater than fifty percent likelihood of being realized upon settlement.

          The Group’s estimated liability for unrecognized tax benefits is periodically assessed for adequacy and may be affected by changing interpretation of laws, rulings by tax authorities, certain changes and/or developments with respect to audits, and expiration of the statute of limitations. The outcome for a particular audit cannot be determined with certainty prior to the conclusion of the audit and, in some cases, appeal or litigation process. The actual benefits ultimately realized may differ from the Group’s estimates. As each audit is concluded, adjustments, if any, are appropriately recorded in the Group’s financial statements. Additionally, in future periods, change in facts, circumstances, and new information may require the Group to adjust the recognition and measurement estimates with regard to individual tax positions. Changes in recognition and measurement estimates are recognized in the period in which the change occurs.

          The Company recognizes the tax benefit for the excess of the tax basis over the financial reporting basis (or the tax liability when the financial reporting basis exceeds the tax basis) (“outside basis difference”) of an investment in subsidiary in accordance with ASC sub-topic 740-30 (“ASC 740-30”), Income Taxes: Recognition, when it is apparent that the temporary differences will reverse in the foreseeable future. If it is more likely than not that a deferred tax liability will be realized as a result of the decision to dispose of a subsidiary, the tax liability would be recorded when the disposal group is classified as held for sale even though any gain expected upon disposal cannot be recognized until the sale is consummated.

F-20

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

(t) Net (loss) income per share

          In accordance with ASC sub-topic 260-10 (“ASC 260-10”), Earnings Per Share: Overall, basic (loss) income per share is computed by dividing net (loss) income attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year. Diluted (loss) income per share is calculated by dividing net (loss) income attributable to ordinary shareholders as adjusted for the effect of dilutive ordinary equivalent shares, if any, by the weighted average number of ordinary and dilutive ordinary share equivalents outstanding during the period. Ordinary share equivalents consist of the ordinary shares issuable upon the Group’s convertible redeemable preferred shares (Note 16), using the if-converted method, and ordinary shares issuable upon the conversion of the warrants (Note 17) and share options (Note 25), using the treasury stock method.

(u) Segment reporting

          The Group follows ASC sub-topic 280-10 (“ASC 280-10”), Segment Reporting: Overall, for the presentation of segment information. The Group’s chief operating decision maker, who has been identified as the chief executive officer (“CEO”), relies upon financial information by provinces with operations in the PRC when making decisions about allocating resources and assessing the performance of the Group. As a result, the Group operates and manages its business as four operating and reportable segments, namely the Yunnan Province segment, the Sichuan Province segment, the Zhejiang Province segment and the Fujian Province segment. As the Group’s long-term assets are substantially all located in and derived from the PRC, no geographical segments are presented.

(v) Government grant

          Government grants are recognized where there is reasonable assurance that the attaching conditions will be complied with. When the grant relates to an expense item, it is recognized as income over the period necessary to match the grant on a systematic basis to the related costs. Where the grant relates to an asset acquisition, it is recognized as deferred government grant and recognized as income in proportion to depreciation of the related assets. Grant income is recognized on a net basis as a reduction to cost of revenues in the accompanying consolidated statements of operations.

(w) Share-based payment

          The Company accounts for share awards issued to employees in accordance with ASC sub-topic 718-10 (“ASC 718-10”), Compensation-Stock Compensation: Overall. In accordance with the fair value recognition provision of ASC 718-10, share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense, net of estimated forfeitures, over the requisite service period, which is generally the vesting period. The Company has elected to recognize share-based compensation expense for share awards granted to employees using the straight-line method. The Company uses a binomial option pricing valuations model in determining the fair value of the options granted.

          The Company accounts for share awards issued to non-employees in accordance with the provisions of ASC 718-10 and ASC sub-topic 505-50 (“ASC 505-50”), Equity: Equity-Based Payment to Non-employees. The Company’s share awards issued to non-employees are subject to graded vesting provisions. The Group recognizes share-based compensation expense for share awards granted to non-employees using the accelerated recognition method over the requisite service period of the award. In accordance with ASC 718-10 and ASC 505-50, the Company uses the binomial option pricing valuations model to measure the value of options granted to non-employees at each vesting date to determine the appropriate charge to share-based compensation.

          ASC 718-10 requires forfeitures to be estimated at the time of grant and revised, if necessary, in the subsequent period if actual forfeitures differ from initial estimates. Share-based compensation expense was recorded net of estimated forfeitures such that expense was recorded only for those share-based awards that are expected to vest. Forfeiture rate is estimated based on historical and future expectation of employee turnover rate and are adjusted to reflect future change in circumstances and facts, if any.

F-21

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

(x) Long-lived assets to be disposed of and discontinued operations

          The Company accounts for a long-lived asset to be disposed of other than by sale in accordance with the provisions of ASC sub-topic 360-10 (“ASC 360-10”), Impairment and Disposal of Long-Lived Assets, where such long-lived asset continues to be classified as held and used until it is disposed of. When a long-lived asset ceases to be used, the carrying amount of the asset is written down to its salvage value, if any.

          The Company accounts for a long-lived asset or disposal group to be sold in accordance with the provisions ASC 360-10, where such long-lived asset or disposal group is classified as held for sale in the period in which all six criteria are met: (1) a plan to sell the asset has been committed to by management; (2) the asset can be sold in its current condition; (3) an active plan has been initiated to find a buyer; (4) it is probable that the asset will be sold and the sale will be completed within one year and will qualify as a completed sale; (5) the sales price is reasonable relative to the asset’s current fair value and the entity is actively marketing the asset; and (6) it is unlikely that the plan to sell the asset will be withdrawn or changed significantly.

          A long-lived asset or disposal group classified as held for sale is measured at the lower of its carrying amount or fair value less cost to sell, and it is presented separately in the balance sheets. Long-lived assets reclassified as held for sale are not depreciated or amortized.

          The Company follows ASC 205-20 in its accounting for a component of the Company that has been disposed of or is classified as held for sale and has operations and cash flows that can be clearly distinguished from the rest of the Company. Such component is reported as discontinued operations. In the period in which a component has been disposed of or classified as held for sale, the results of operations, including any gain or loss after tax recognized in accordance with ASC 360-10, less applicable income taxes (benefit), for the periods presented are reclassified into line items of income separately from net income (loss) from continuing operations before extraordinary items (if applicable), in the statements of operations.

(y) Recently issued accounting standards

          In April 2011, the Financial Accounting Standards Board (“FASB”) issued ASU 2011-03, Reconsideration of Effective Control for Repurchase Agreements. ASU 2011-03 removes from the assessment of effective control the criterion relating to the transferor’s ability to repurchase or redeem financial assets on substantially the agreed terms, even in the event of default by the transferee and also eliminates the requirement to demonstrate that the transferor possesses adequate collateral to fund substantially all the cost of purchasing replacement financial assets. ASU 2011-03 is effective for the first interim or annual period beginning on or after December 15, 2011, which should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. The Company is currently evaluating the impact on its consolidated financial statements of adopting this guidance.

          In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (ASC 820), which amends the fair value measurement guidance and includes some enhanced disclosure requirements. The most significant change in disclosures is an expansion of the information required for Level 3 measurements based on unobservable inputs. ASU 211-04 is effective for fiscal years beginning after December 15, 2011. Early application by public entities is not permitted. The Company is currently evaluating the impact on its consolidated financial statements of adopting this guidance.

          In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220), Presentation of Comprehensive Income, which eliminates the current option to report other comprehensive income (“OCI”) and its components in the statements of shareholders’ equity. Instead, an entity will be required to present items of net income and OCI in one continuous statement or in two separate, but consecutive, statements. In December 2011, the FASB issued ASU 2011-12, Comprehensive Income (Topic 220), Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. ASU 2011-12 defers the ASU 2011-05 requirement that companies present reclassification adjustments for each component of OCI in both net income and OCI on the face of the financial statements and the requirement to report reclassification adjustments in interim periods. The amendments in ASU 2011-05 and ASU 2011-12 should be applied retrospectively and are effective for fiscal years and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. The Company is currently evaluating the impact on its consolidated financial statements of adopting this guidance.

F-22

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

          In September 2011, the FASB issued ASU 2011-08, Intangibles—Goodwill and Other (ASC 350), which is intended to reduce the cost and complexity of the annual goodwill impairment test by providing entities an option to perform a “qualitative” assessment to determine whether further impairment testing is necessary. Specifically, an entity has the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step test. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The Company is currently evaluating the impact on its consolidated financial statements of adopting this guidance.

          In December 2011, the FASB issued ASU 2011-11, Disclosures about Offsetting Assets and Liabilities. Entities are required to disclose both gross and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. This scope would include derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. ASU 2011-11 should be applied retrospectively and are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The Company is currently evaluating the impact on its consolidated financial statements of adopting this guidance.

3. ACQUISITIONS

(a) Acquisition of a subsidiary

          During the year ended December 31, 2011, the Company completed the acquisition of 100% ownership interest in Dazhaihe. This acquisition is in line with the Company’s plan to further expand its hydroelectric power generation capacity in the PRC.

          On November 6, 2010, Xiaopengzu entered into an equity transfer purchase agreement with seven individual shareholders to acquire 100% of the equity interest in Dazhaihe. The total purchase consideration for the acquisition was US$9,019 (RMB59,000) cash. The hydroelectric project of Dazhaihe is located in Mengqian County, Yunnan Province, and has been in operation since September 2008. The acquisition was completed and Xiaopengzu took effective control of Dazhaihe on April 10, 2011. The acquisition of Dazhaihe meets the definition of a business acquisition and the results of operations of the acquired business have been included in the Company’s consolidated financial statements since April 10, 2011.

          Based on the available and obtainable information as of April 10, 2011, which is subject to further refinement, the following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition on April 10, 2011.

	US$
Cash purchase price		9,019
Total purchase consideration		9,019
Cash		59
Property, plant and equipment, net		11,540
Other assets		555
Goodwill		6,646
Total assets acquired		18,800
Other liabilities		(9,303	)
Deferred tax liabilities—non-current		(478	)
Total liabilities assumed		(9,781	)
Net assets acquired		9,019

          The US$6,646 goodwill from the acquisition of Dazhaihe was assigned to the Yunnan Province segment. The goodwill recognized is primarily attributable to expected synergies and the assembled workforce of Dazhaihe. None of the goodwill is expected to be deductible for tax purposes.

          The Company recognized US$28 of acquisition-related costs that were expensed in the year ended December 31, 2011. These costs are included in “General and administrative expenses” in the consolidated statements of operations.

F-23

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

          The amounts of revenue and net loss of Dazhaihe included in the Company’s consolidated statement of operations from April 10, 2011, the acquisition date, to December 31, 2011 are as follows:

	US$
Revenue	831
Net loss	(717	)

(b) Unaudited pro forma consolidated financial information

          The following unaudited pro forma consolidated financial information reflects the results of the operations of the Group for the years ended December 31, 2010 and 2011, as if the acquisition of Dazhaihe in 2011 described above had been completed at the beginning of the years presented. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what operating results would have been had the acquisitions actually taken place on the dates indicated and may not be indicative of future operating results. The pro forma adjustments are based upon available information and certain assumptions that management believes are reasonable.

	For the Years Ended December 31,
	2010			2011
	US$			US$
Revenues		63,643			57,907
Profit (loss) before income taxes		5,409			(53,952	)
Net loss attributable to ordinary shareholders		(12,322	)		(45,638	)
Basic and diluted loss per share		(0.09	)		(0.29	)

(c) Acquisition of noncontrolling interest

          On January 14, 2011, Fujian Huabang, a wholly-owned subsidiary of the Company, completed the acquisition of the remaining 10% equity interest of Wangkeng pursuant to an equity transfer purchase agreement with Sanming Chenyang Hydroelectric Co., Ltd. dated November 22, 2010. The purchase consideration for the acquisition was US$5,939 (RMB38,967). The Company accounted for the purchase of subsidiary shares from the noncontrolling interest as an equity transaction in accordance with ASC 810-10. The carrying amount of the noncontrolling interest was adjusted from US$1,032(RMB6,777) to US$nil to reflect the noncontrolling interest holder’s reduced ownership interest in Wangkeng’s net assets. The difference between the consideration paid by the Company to the noncontrolling interest holder and the adjustment to the carrying amount of the noncontrolling interest in Wangkeng was recognized in additional paid-in capital. Upon the completion of this transaction, Wangkeng became a wholly-owned subsidiary of the Group.

The following table shows the effects of changes in the Company’s ownership interest in Wangkeng on the Company’s equity:

	For the Years Ended December 31,
	2010		2011
	US$		US$
Net income (loss) attributable to the Company		3,742		(45,389	)
Decrease in the Company’s paid-in capital for purchase of 10% of equity interest in Wangkeng		—		(4,907	)
Net transfers to noncontrolling interest		—		(4,907	)
Change from net income (loss) attributable to the Company and transfers to noncontrolling interest		3,742		(50,296	)

(d) Finalization of purchase price allocation

          During the year ended December 31, 2011, the Company finalized the purchase price allocation for the acquisition of Jinling and its subsidiaries and retrospectively adjusted the December 31, 2010 consolidated balance sheet to increase goodwill by US$1,416, other liabilities by US$625 and deferred tax assets by US$474, and to decrease other assets by US$1,265, as if they were recorded on the acquisition date of December 30, 2010. No significant adjustment was made to the purchase price allocations relating to other acquisitions completed in the year ended December 31, 2010.

F-24

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

          The following table presents the details of the preliminary purchase price allocation reported as of December 31, 2010, the adjustment made in the year ended December 31, 2011 and the final purchase price allocation.

	Preliminary December 31, 2010			Adjustments			Final December 31, 2010
	US$			US$			US$
Cash and Bank		26						26
Property, plant and equipment, net		78,953						78,953
Intangible assets		1,759						1,759
Other assets		2,930			(1,265	)		1,665
Goodwill		7,925			1,416			9,341
Deferred tax assets— non-current		—			474			474
Total assets acquired		91,593			625			92,218
Short-term loans		(9,286	)					(9,286	)
Current portion of long-term loans		(5,964	)					(5,964	)
Long-term loans		(16,081	)					(16,081	)
Other liabilities		(40,924	)		(625	)		(41,549	)
Deferred tax liabilities — non-current		(4,274	)					(4,274	)
Total liabilities assumed		(76,529	)		(625	)		(77,154	)
Non-controlling interest		(3,731	)		—			(3,731	)
Net assets acquired		11,333			—			11,333

          Adjustments were made mainly to reflect new information obtained during the measurement period after the preliminary purchase price allocation on the provisional acquisition-date fair value of certain assets and liabilities as well as the corresponding deferred taxes.

4. ACCOUNTS RECEIVABLE

          The Group’s trading terms with its customers are mainly on credit. The credit terms are generally within 60 days after the delivery of electricity. The Group does not offer extended payment terms and all accounts receivable balances are non-interest-bearing.

          As of December 31, 2010 and 2011, all of the accounts receivable balances were within credit terms.

5. PREPAYMENTS AND OTHER CURRENT ASSETS

          Prepayments and other current assets consist of the following:

	December 31,
	2010		2011
	US$		US$
Advances for construction projects		424		88
Acquisition deposits		4,832		714
Amounts due from original shareholders of acquired subsidiaries		1,138		1,244
Others		1,827		1,667
		8,221		3,713
Less: Provision for impairment allowance		—		(714	)
Total		8,221		2,999

F-25

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

          Acquisition deposits as of December 31, 2011 represent a deposit of US$476 advanced by Wangkeng to Long Yan Ting Zhou Hydroelectric Development Co., Ltd. in April 2011 for the acquisition of the Ting Zhou hydroelectric project and a deposit of US$238 advanced by Hengda to Lushui Jinman Hydro Development Co., Ltd. in April 2011 for the acquisition of the Jinmanhe power project. As of December 31, 2011, these acquisitions have not been completed and the memorandums of understanding in relation to these acquisitions have expired. As a result, the Group recognized a full provision for impairment allowance on the acquisition deposits of US$714 in the year ended December 31, 2011.

          Amounts due from original shareholders of acquired subsidiaries as of December 31, 2010 mainly represent US$630 receivable from the original shareholders of Jinling and US$354 from the original shareholders of Banzhu, for social insurance which should be borne by the original shareholders in accordance with equity purchase agreements.

          Amounts due from original shareholders of acquired subsidiaries as of December 31, 2011 mainly represent US$487 receivable from the original shareholders of Jinling for business tax and land value added tax related to the disposal of an office building before the acquisition date and US$502 from the original shareholders of Banzhu for social insurance which should be borne by the respective original shareholders in accordance with the equity purchase agreements.

6. DISCONTINUED OPERATIONS

          On December 3, 2011, the Company entered into an equity purchase and sale agreement with a third-party to dispose 100% equity interest in Yuanping for a total consideration of US$11,276 (RMB71,050) cash. Yuanping owns and operates one hydroelectric station located in the Fujian Province, the PRC. On the same day, an agreement was entered into between Yuanping and Yuheng whereby Yuanping is assigned a right to use 36.48% of the water generated by Yuheng’s dam and reservoir at nil consideration with immediate effect. The dam and reservoir legally owned by Yuheng had been utilized in power generation by both Yuanping and Yuheng historically. The disposal transaction was not completed as of December 31, 2011.

          Yuanping met the criteria for disposal group to be classified as held for sale in accordance with ASC 360-10. In addition, Yuanping has operations and cash flows that were clearly distinguished from the rest of the Group in accordance with ASC 205. Accordingly, the operating results of Yuanping have been presented as discontinued operations in the consolidated statements of operations for all years presented. The assets and liabilities related to Yuanping have been presented as assets classified as held-for -sale and liabilities directly associated with the assets classified as held-for-sale, respectively, in accordance with ASC360-10 in the consolidated balance sheet as of December 31, 2011. The disposal transaction was completed on March 2, 2012.

          The breakdown of assets and liabilities as of each reporting date and the results of discontinued operations for the years presented are as follows:

(a) Assets of disposal group classified as held-for-sale

	December 31,
	2010		2011
	US$		US$
Cash and cash equivalents		204		11
Property, plant and equipment		17,062		17,376
Goodwill		3,058		3,214
Other intangible assets		550		587
Deferred tax assets		—		259
Other current assets		303		246
Total		21,177		21,693

(b) Liabilities directly associated with the assets classified as held-for-sale

	December 31,
	2010		2011
	US$		US$
Long term loans		10,419		10,475
Deferred tax liabilities(non current)		462		815
Current portion of long-term loans		302		476
Accrued expenses and other current liabilities		189		154
Total		11,372		11,920

F-26

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

          In accordance with ASC 740, as it is more likely than not that a deferred tax liability will be realized as a result of the decision to dispose of Yuanping, a tax liability of US$136 was recorded when the disposal group is classified as held for sale even though any capital gain tax expected upon disposal cannot be recognized until the sale is consummated.

(c) Results of discontinued operations

	For the Years Ended December 31,
	2009			2010			2011
	US$			US$			US$
Revenues		1,848			3,373			1,790
Cost of revenues		(725	)		(875	)		(867	)
General and administrative expenses		(96	)		(133	)		(94	)
Interest income		—			1			1
Interest expense		(869	)		(685	)		(787	)
Other (expense) income, net		—			6			(2	)
Income tax expenses		(59	)		197			(79	)
Net income (loss) on discontinued operations		99			1,884			(38	)

(d) No allocation of cash flows has been made between continuing and discontinued operations, as the cash flows provided by or used in the operating, investing and financing activities of the discontinued operations were insignificant.

F-27

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

7. PROPERTY, PLANT AND EQUIPMENT, NET

          Property, plant and equipment and its related accumulated depreciation as of December 31, 2010 and 2011 are as follows:

	December 31,
	2010			2011
	US$			US$
Dams and reservoirs		286,450			343,851
Buildings		166,896			128,448
Machinery		147,252			156,685
Transportation equipment		1,394			1,840
Electronic equipment and others		3,812			4,187
Less: Accumulated depreciation		(32,984	)		(55,237	)
		572,820			579,774
Construction in progress, net		10,866			1,190
Total		583,686			580,964

          Construction in progress, net of impairment charge, as of December 31, 2010 and 2011 is as follows:

	Jiulongshan			Liyuan			Binglangjiang			Wuyue
	US$			US$			US$			US$
Balance as of December 31, 2009		—			1,616			—			—
Acquisition during the year		—			—			—			8,875
Addition to construction in progress		32			346			571			1,352
Transfer from property, plant and equipment		—			—			449			—
Transfer to property, plant and equipment		—			(1,985	)		(756	)		—
Foreign currency translation adjustment		1			23			4			293
Balance as of December 31, 2010		33			—			268			10,520
Acquisition during the year		—			—			—			—
Addition to construction in progress		34			1,129			1,384			808
Transfer from property, plant and equipment		—			—			—			—
Transfer to property, plant and equipment		(55	)		—			(1,658	)		—
Impairment of construction in progress		—			—			—			(11,590	)
Foreign currency translation adjustment		1			29			7			262
Balance as of December 31, 2011		13			1,158			1			—

	Yingchuan		Ruiyang		Zhougongyuan			Jinling			Total
	US$		US$		US$			US$			US$
Balance as of December 31, 2009		—		—		—			—			1,616
Acquisition during the year		—		—		—			8			8,883
Addition to construction in progress		9		9		19			—			2,338
Transfer from property, plant and equipment		—		—		—			—			449
Transfer to property, plant and equipment		—		—		—			—			(2,741	)
Foreign currency translation adjustment		—		—		—			—			321
Balance as of December 31, 2010		9		9		19			8			10,866
Acquisition during the year		—		—		—			—			—
Addition to construction in progress		—		—		2,922			—			6,277
Transfer from property, plant and equipment		—		—		—			—			—
Transfer to property, plant and equipment		—		—		(2,942	)		(8	)		(4,663	)
Impairment of construction in progress		—		—		—			—			(11,590	)
Foreign currency translation adjustment		—		—		1			—			300
Balance as of December 31, 2011		9		9		—			—			1,190

F-28

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

          Impairment of construction in progress represents the full write-off of the hydropower project development costs incurred by Wuyue, a 79% owned subsidiary of the Company. Wuyue holds the right to develop a hydropower project of 1,000 megawatts in the Henan Province, the PRC. The project made minimum progress after the acquisition of Wuyue by the Company in October 2009. During the year ended December 31, 2011, the Company decided to abandon the development of the hydropower project and fully impair the construction in progress.

          Interest costs from continuing operations qualifying for capitalization in the years ended December 31, 2009, 2010 and 2011 were US$1,426, US$nil and US$10, respectively.

          Depreciation expenses from continuing operations for the years ended December 31, 2009, 2010 and 2011 were US$11,109, US$15,289 and US$21,417, respectively. Accumulated depreciation as of December 31, 2010 and 2011 included foreign currency translation adjustment of US$899 and US$2,164, respectively. Depreciation expenses have been reported in the following accounts:

	For the Years ended December 31,
	2009			2010			2011
	US$			US$			US$
Cost of revenues		(10,972	)		(15,063	)		(21,119	)
General and administrative expenses		(137	)		(226	)		(298	)
Total		(11,109	)		(15,289	)		(21,417	)

8. INTANGIBLE ASSETS

          In connection with the acquisition of Binglangjiang in 2007, the Company acquired a legal right to develop and operate Phase II of Binglangjiang’s hydroelectric power project. The development right allows the Company to expand the power generation capacity of Binglangjiang by utilizing the existing water dam of Binglangjiang, which has a useful life of 30 years. The Company recognized the fair value of US$2,909 of the development right as a separate intangible asset apart from goodwill in accordance with ASC 805-10. The estimated useful life of the development right is 30 years.

          In connection with the acquisition of Yuanping in 2008, the Company acquired a contractual right to use water from the dam and reservoir of the Jinzaoqiao station, which has a useful life of 40 years. The Company recognized the fair value of US$563 of the water use right as a separate intangible asset apart from goodwill in accordance with ASC 805-10. The estimated useful life of the water use right is 40 years. As of December 31, 2011, the net carrying value of the water use right of US$562 was classified as assets held-for-sale (Note 6).

          On August 12, 2009, Yuheng acquired a contractual right to use water from the dam and reservoir of Wanquan Power Generation Co., Ltd. for a purchase price of US$1,025. The term of the water use right is 30 years.

          In connection with the acquisition of Jinling, the Company acquired a right to use the dam of the Dongguan hydropower project which has a useful life of 40 years. The Company recognized the fair value of US$1,759 for the dam use right as a separate intangible asset apart from goodwill in accordance with ASC 805-10. The estimated useful life of the dam use right of Dongguan is 40 years.

          Intangible assets and their related accumulated amortization as of December 31, 2010 and 2011 are as follows:

	December 31, 2010
	Gross Carrying Value		Accumulated Amortization			Foreign Currency Translation Adjustment		Net Carrying Value
Development right of Binglangjiang Phase II		2,909		(393	)		462		2,978
Water use right of Wanquan Power Generation Co., Ltd.		1,025		(93	)		30		962
Water use right of Jinzaoqiao station		563		(31	)		18		550
Dam use right of Dongguan		1,759		—			—		1,759
Total		6,256		(517	)		510		6,249

F-29

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

	December 31, 2011
	Gross Carrying Value		Accumulated Amortization			Foreign Currency Translation Adjustment		Net Carrying Value
Development right of Binglangjiang Phase II		2,909		(509	)		611		3,011
Water use right of Wanquan Power Generation Co., Ltd.		1,025		(129	)		78		974
Dam use right of Dongguan		1,759		(45	)		89		1,803
Total		5,693		(683	)		778		5,788

          Amortization expenses from continuing operations for the years ended December 31, 2009, 2010 and 2011 were US$167, US$146 and US$197, respectively. Amortization expenses have been reported in the following accounts:

	For the Years Ended December 31,
	2009			2010			2011
	US$			US$			US$
Cost of revenues		(57	)		(35	)		(81	)
General and administrative expenses		(110	)		(111	)		(116	)
Total		(167	)		(146	)		(197	)

          The estimated annual amortization expenses for each of the five succeeding fiscal years are as follows:

	US$
2012	202
2013	202
2014	202
2015	202
2016	202

9. GOODWILL

          Goodwill of US$135,651 as of December 31, 2011 represents the excess of the purchase price over the estimated fair value of the net tangible and identifiable intangible assets acquired relating to the acquisition of Binglangjiang during 2007, the acquisitions of Yingchuan, Wuliting, Yuheng, Wangkeng, and Banzhu during 2008, the acquisitions of Shapulong and Ruiyang during 2009, the acquisitions of Husahe, Hengda, Xineng, Xiaopengzu and Jinling and its subsidiaries during 2010 and the acquisition of Dazhaihe during 2011 (Note 3), net of foreign currency translation adjustment. Goodwill is not deductible for tax purposes. In accordance with ASC 350-10, goodwill is not amortized but is tested for impairment at least annually.

          The changes in the carrying amount of goodwill by operating and reportable segments for the years ended December 31, 2010 and 2011 are as follows:

	Yunnan Province			Sichuan Province		Fujian Province			Zhejiang Province		Total
	US$			US$		US$			US$		US$
Balance as of December 31, 2009		2,881			—		65,001			39,942		107,824
Goodwill acquired during the year		15,656			—		9,341			—		24,997
Adjustments during measurement period		—			—		—			59		59
Foreign currency translation adjustment		499			—		2,016			1,240		3,755
Balance as of December 31, 2010, as adjusted		19,036			—		76,358			41,241		136,635
Goodwill acquired during the year		6,646			—		—			—		6,646
Reclassified to assets held for sale		—			—		(3,214	)		—		(3,214	)
Foreign currency translation adjustment		1,122			—		3,744			2,106		6,972
Impairment of goodwill		(5,260	)		—		(6,128	)		—		(11,388	)
Balance as of December 31, 2011		21,544			—		70,760			43,347		135,651

          During the year ended December 31, 2011, the Company finalized the purchase price allocation for the acquisition of Jinling and its subsidiaries and retroactively adjusted the December 31, 2010 consolidated balance sheet to increase goodwill by US$1,416, other liabilities by US$625 and deferred tax assets by US$474, and to decrease other assets by US$1,265, as if they were recorded on the acquisition date of December 30, 2010 (Note 3 (d)).

F-30

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

          During the year ended December 31, 2011, due to the significant decline in its share price for a sustained period, the Company determined that there was an impairment indicator related to the carrying value of its goodwill. Thus, the Company performed the two-step goodwill impairment test on each of its reporting units.

          In estimating the fair value of each of the reporting units in the first step of the impairment test, significant management judgment was applied. The Company estimated the fair value of each of the reporting units using the income approach valuation methodology. The market-based valuation methodology is not considered as appropriate because of volatility of the general market condition as well as insufficient number of comparable companies. In using the income approach methodology of valuation, estimates to determine the fair value of the reporting units included management’s judgment related to forecasts of future operating results, discount rates and expected future growth rates. The underlying assumptions used in the first step of the impairment test considered the market capitalization as of December 31, 2011 as well as the current local operating environment in certain provinces in the PRC and its expected impact on the fair value of the reporting unit. The Company determined that the fair value of certain reporting units was less than their carrying value and performed the second step of the impairment test.

          The Company performed the second step of the impairment test to determine the implied fair value of goodwill for the reporting units with fair value less than carrying value. The implied fair value of goodwill was determined by allocating the fair value of the reporting unit to all of the assets and liabilities including any unrecognized intangible assets of the reporting units. This implied fair value was compared to the carrying value of reporting unit goodwill to quantify the amount of impairment loss. For the year ended December 31, 2011, the Company recognized an impairment loss on goodwill of US$11,388.

10. LAND USE RIGHTS

          Land use rights and their related accumulated amortization as of December 31, 2010 and 2011 are as follows:

	December 31,
	2010			2011
	US$			US$
Land use right		48,542			48,500
Less: Accumulated amortization		(2,384	)		(3,528	)
Foreign currency translation adjustment		2,786			5,694
Total		48,944			50,666

          The estimated annual amortization expenses for each of the five succeeding fiscal years are as follows:

	US$
2012	1,174
2013	1,174
2014	1,174
2015	1,174
2016	1,174

F-31

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

11. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

          Accrued expenses and other current liabilities consist of the following:

	December 31,
	2010		2011
	US$		US$
Accrued payroll expenses		4,148		2,583
Retainage due to contractors		2,351		2,283
Purchase consideration payable		14,119		4,752
Employee involuntary termination costs related to Jinling acquisition		792		—
Guarantee deposits from original shareholders of acquired subsidiaries		3,188		4,265
Taxes payable		4,023		3,414
Guarantee liabilities		28		—
Amounts due to original shareholders of acquired subsidiaries		22,422		22,942
Unrecognized tax benefits		2,740		4,344
Accrued water resource fee		1,506		1,417
Loans from third parties		5,832		14,483
Interest payable		704		1,056
Accrued dam and reservoirs repair fee		510		3,835
Reservoir maintenance fund		756		1,398
Deposits from third parties		—		1,905
Other liabilities		3,644		6,325
Total		66,763		75,002

          Retainage due to contractors represents the portion of the payment due to contractors that is withheld until final inspection and acceptance of the construction projects.

          Purchase consideration payable as of December 31, 2010 represents the US$2,767, US$18, US$11,334 outstanding unpaid portion of the purchase consideration for the acquisitions of Wuliting, Ruiyang, and Jinling and its subsidiaries, respectively. Purchase consideration payable as of December 31, 2011 represents the US$1,825, US$18, US$2,909 outstanding unpaid portion of the purchase consideration for the acquisitions of Xiaopengzu, Ruiyang, and Wuliting, respectively.

          Guarantee deposits of US$4,265 from original shareholders of acquired subsidiaries as of December 31, 2011 represent security deposits received by the Company from original shareholders of Wangkeng, Wuliting and Yingchuan which will be returned by the Company within ten days when the original shareholders of the acquired subsidiaries furnish the Company with final documentation relating to the acquired hydroelectric power projects and dams and reservoirs. Pursuant to the equity transfer purchase agreements of Wuliting, Yingchuan and Wangkeng, the original shareholders are required to provide such documentation within one year from the respective dates of acquisition. The final documentation has not been provided in full as of December 31, 2011 and the Company will retain the guarantee deposits until receipt of such documentation.

          Amounts due to original shareholders of acquired subsidiaries as of December 31, 2011 represent (i) US$2,785 payable to the original shareholders of Dazhaihe, Wangkeng, and Wuliting for their entitlement to the net working capital surplus of Dazhaihe, Wangkeng, and Wuliting immediately prior to the consummation of the acquisitions in accordance with the supplemental equity transfer purchase agreements; and (ii) liabilities assumed in the acquisition of Jinling, which consisted of amounts payable to original shareholders of Jinling related to borrowings from these original shareholders before the acquisition date of US$18,735 (RMB118,047). The borrowings are repayable on demand and are subject to a weighted average interest rate of 7.33% per annum as of December 31, 2011.

          Deposits from third parties as of December 31, 2011 represent cash deposits received from certain third-party individuals bidding for the right to provide outsourcing management services to the Group’s hydropower stations in the Zhejiang Province, the PRC, in 2013. The deposits are interest-free and repayable by the Group upon selection of the provider for the outsourcing management services.

          Loans from third-parties as of December 31, 2011 represent RMB denominated loans from non-financial institutions of US$3,483, US$1,478, US$3,174, US$3,174 and US$3,174 for Jinling, Jinlong, Xiaopengzu, Wuliting and Jiulongshan, respectively. The loans for Jinling and Jinlong bear an interest rate of 18.55% per annum and 18.0% per annum, respectively, and are unsecured and repayable within one year. The loans for Xiaopengzu, Wuliting and Jiulongshan were guaranteed by Yuheng, repayable on demand, and bear an interest rate of 21.6% per annum.

F-32

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

12. INCOME TAX EXPENSES

Cayman Islands

          Under the current laws of the Cayman Islands, the Company is not subject to tax on income or capital gain. In addition, upon payments of dividends by the Company to its shareholders, no Cayman Islands withholding tax will be imposed.

Hong Kong

          Under the current laws of Hong Kong, CHC HK and Sunpower is subject to tax on income or capital gain. In addition, upon payments of dividends by CHC HK and Sunpower to the Company, no Hong Kong withholding tax will be imposed.

PRC

          During the 5th section of the 10th National People’s Congress, which was conducted on March 16, 2007, the PRC Corporate Income Tax Law (the “New CIT Law”) was approved and has become effective on January 1, 2008. On November 28, 2007, the regulation on the implementation of the New CIT Law was approved at the 197th Executive Meeting of the States Council. The New CIT Law and the Implementation regulation introduce a wide range of changes which include, but are not limited to the unification of the income tax law for domestic-invested and foreign invested enterprise at 25%. The New CIT Law provided a transition period for enterprises, whether foreign-invested or domestic, that received certain preferential tax treatments granted by relevant tax authorities. Under the transition rule, an enterprise subject to an enterprise income tax rate lower than 25% prior to January 1, 2008 is eligible to continue enjoying the lower rate and gradually transition to 25% within five years after the effective date of the New CIT Law.

          Pursuant to the new CIT Law, entities which originally enjoyed the two years tax exemption and three years 50% reduction tax treatments are eligible to continue following the original tax laws and administrative regulations until their respective expiration dates. Binglangjiang, Liyuan, Husahe, Hengda, Xineng, Xiaopengzu and Dazhaihe are wholly-owned foreign enterprises (“WOFEs”) located in the Western Development area and were granted with a preferential tax rate of 15% prior to January 1, 2008 whereby (i) Binglangjiang was entitled to a lower corporate income tax rate of 15% as its corporate income tax rate from 2007 to 2011; (ii) Liyuan was entitled to tax exemption in 2007 and 2008 and a tax rate of 7.5% from 2009 to 2011; (iii) Husahe was entitled to a lower corporate income tax rate of 15% as its corporate income tax rate from 2007 to 2011; (iv) Hengda was entitled to tax exemption in 2007 and 2008 and a tax rate of 7.5% from 2009 to 2011; (v) Xineng, Xiaopengzu and Dazhaihe were entitled to tax exemption in 2009 and 2010 and a tax rate of 7.5% in 2011. All of the Company’s remaining subsidiaries located in the PRC are subject to the statutory tax rate of 25% beginning in 2008. Banzhu was entitled to tax exemption in 2008 and 2009 and a corporate income tax rate of 12.5% from 2010 to 2012 based on the tax preferential treatment granted by the PRC government on May 15, 2009.

          In accordance with the New CIT Law, enterprises established under the laws of foreign countries or regions and whose “place of effective management” is located within the PRC territory are considered PRC resident enterprises and subject to the PRC income tax at the rate of 25% on worldwide income. The definition of “place of effective management” refers to an establishment that exercises, in substance, overall management and control over the production and business, personnel, accounting, properties, etc. of an enterprise. As of December 31, 2011, no detailed interpretation or guidance has been issued to define “place of effective management”. If the Company’s non-PRC incorporated entities are deemed PRC tax residents, such entities would be subject to PRC tax under the New CIT Law. As of December 31, 2011, the Company has analyzed the applicability of this law and has not accrued for PRC tax on such basis. The Company will continue to monitor changes in the interpretation or guidance of this law.

          The Group had minimal operations in jurisdictions other than the PRC.

          (Loss) income before income taxes consists of:

	For the Years Ended December 31,
	2009			2010			2011
	US$			US$			US$
Cayman Islands		(18,648	)		(11,072	)		(17,593	)
PRC		554			16,730			(36,110	)
		(18,094	)		5,658			(53,703	)

F-33

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

          Income tax expenses consist of:

	For the Years Ended December 31,
	2009		2010			2011
	US$		US$			US$
Current income tax expenses		697		4,016			2,113
Deferred income tax expenses (benefits)		736		(459	)		(564	)
Income tax expenses		1,433		3,557			1,549

          A reconciliation of the effective income tax provisions to the amount computed by applying the statutory tax rate to (loss) income before income taxes in the consolidated statements of operations is as follows:

	For the Years Ended December 31,
	2009			2010			2011
	US$			US$			US$
Taxation at PRC effective income tax statutory rate (25% for the years ended December 31, 2009, 2010 and 2011)		(4,500	)		1,453			(13,426	)
Impact of tax rate differences		4,663			3,083			4,564
Effect of tax holidays in the PRC		505			(301	)		435
Preferential tax treatment		(169	)		(210	)		332
Deemed interest income		441			705			1,085
Non-deductible expenses		204			530			4,340
Change in valuation allowance		289			(1,703	)		3,818
Impact of changes in enacted tax rates		—			—			(325	)
Prior year tax audit adjustment		—			—			190
Outside basis difference of discontinued operations		—			—			136
Undistributed earnings of a foreign subsidiary		—			—			400
Income tax provision		1,433			3,557			1,549
Effective Tax Rate (%)		(8.0	%)		62.9	%		(3.0	%)

          As of December 31, 2011, in accordance with ASC 740-10, the Group has recognized total additional income tax provisions of US$2,795 for unrecognized tax benefits, mainly related to transfer pricing issues and non-deductible expenses. The Group also recognized a decrease of unrecognized tax benefits of US$87 for the change in prior year tax position in 2011. The Group reclassified unrecognized tax benefits of US$618 to liabilities directly associated with the assets classified as held-for-sale due to the disposal of Yuanping. The Company has US$3,743 cumulative unrecognized tax benefits as of January 1, 2011.

          A reconciliation of accrued unrecognized tax benefits is as follows:

	US$
Balance as of January 1, 2011		3,743
Additions for tax positions taken in the current period		459
Additions for tax positions of prior years		2,336
Reduction for tax positions of prior years		(87	)
Reclassification as liabilities directly associated with assets classified as held for sale		(618	)
Foreign currency translation		260
Balance as of December 31, 2011		6,093

          As of December 31, 2011, the Group recorded unrecognized tax benefit of US$6,093, of which US$4,998 of the unrecognized tax benefit, if ultimately recognized, will impact the effective tax rate. Of the US$4,998, US$1,749 is presented on a net basis on the face of the balance sheet against deferred tax asset related to net operating loss, for which a full valuation allowance would otherwise be recorded.

F-34

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

          It is possible that the amount of unrecognized tax benefits will change in the next 12 months, pending factors such as changes in PRC tax law or administrative practices and precedents, or tax authority inquiries. An estimate of the change cannot be made at this time.

          The Group recognizes interest accrued related to unrecognized tax benefits in interest expenses. During the years ended December 31, 2009, 2010 and 2011, the Group recognized US$183, US$237 and US$514 in interest expense, respectively.

13. DEFERRED TAX ASSETS / DEFERRED TAX LIABILITIES

          Deferred tax assets and deferred tax liabilities reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of deferred tax assets and deferred tax liabilities are as follows:

	December 31,
	2010			2011
	US$			US$
Deferred tax assets—current
Allowance for uncollectible other receivables		41			533
Accrued water resource fee		607			277
Accrued expenses		10			517
Other payable		602			1,076
Deferred tax assets—current		1,260			2,403
Valuation allowance		—			(604	)
Net deferred tax assets-current		1,260			1,799
Deferred tax liabilities—current
Outside basis difference of discontinued operations (Note 6)		—			(136	)
Undistributed earnings of a foreign subsidiary		—			(400	)
Deferred tax liabilities—current		—			(536	)
Deferred tax assets—non-current
Net operating loss carry-forwards		772			2,056
Depreciation of property, plant and equipment		523			505
Provision for impairment allowance		474			3,472
Others		1			11
Deferred tax assets—non-current		1,770			6,044
Valuation allowance		(784	)		(4,277	)
Net deferred tax asset—non-current		986			1,767
Deferred tax liabilities—non-current
Fair value step-up of property, plant and equipment		(25,028	)		(25,246	)
Unfavorable contract obligation—electricity supply contract		8			9
Amortization of acquired intangible assets		(330	)		(1,326	)
Deferred tax liabilities—non-current		(25,350	)		(26,563	)

F-35

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

          Deferred tax assets of US$713 and deferred tax liabilities of US$5,668 were recognized as a result of the acquisitions of Husahe, Hengda, Xineng, Xiaopengzu and Jinling during the year ended December 31, 2010. The Group recognized a full valuation allowance of US$213, US$210, US$149, and US$42 on the deferred tax assets of Hengda, Xineng, and Xiaopengzu, and Jinling at the respective acquisition date as it is more likely than not that the benefit in future earnings will not be realized. Post-acquisition adjustments of US$562, US$420, US$136, US$83, U$$89 and US$399 to the deferred tax assets valuation allowance that was recognized at the time of the acquisitions of Binglangjiang, Wuliting, Shapulong, Ruiyang, Jiulongshan and Yuanping, respectively, were recognized in income tax expense during the year ended December 31, 2010.

          Deferred tax assets of US$138 and deferred tax liabilities of US$478 were recognized as a result of the acquisition of Dazhaihe during the year ended December 31, 2011. The Group recognized a full valuation allowance of US$138 on the deferred tax asset of Dazhaihe at the acquisition date as it is more likely than not that the benefit in future earnings will not be realized. Post-acquisition adjustment of US$60 to the deferred tax assets valuation allowance that was recognized at the time of the acquisition of Dazhaihe was recognized in income tax expense during the year ended December 31, 2011.

          The Group records a valuation allowance on its deferred tax assets that is sufficient to reduce the deferred tax assets to an amount that is more likely than not to be realized. Future reversal of the valuation allowance will be recognized either when the benefit is realized or when it has been determined that it is more likely than not that the benefit in future earnings will be realized.

          The Group recognized a change in valuation allowance of US$289, US$1,703 and US$3,818 during the years ended December 31, 2009, 2010 and 2011, respectively. A foreign currency translation adjustment of US$3, US$54 and US$69 on deferred tax asset and the related valuation allowance was recognized in accumulated other comprehensive income as of December 31, 2009, 2010 and 2011, respectively.

          Net operating loss carry-forward of US$15,836 as of December 31, 2011 will expire in years 2012 to 2017. Investment tax credit carry forward of US$166 as of December 31, 2010 was fully expired in year 2011.

          Apart from the amount disclosed above related to the undistributed earnings of a foreign subsidiary, deferred tax liabilities have not been provided on the undistributed earnings of the Company’s other foreign subsidiaries during 2010 and 2011, as the Company intends to indefinitely reinvest such earnings into its foreign subsidiaries. Saved as disclosed above, the amount of recognized deferred tax liabilities for temporary differences related to investments in foreign subsidiaries is not determined because such a determination is not practicable.

          The benefit of tax holiday on basic and diluted loss per share is as follows:

	For the Years Ended December 31,
	2009	2010	2011
	US$	US$	US$
Basic and diluted	0.02	0.002	0.003

F-36

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

14. BORROWINGS

          Total borrowings as of December 31, 2010 and 2011 consist of:

	December 31,
	2010		2011
	US$		US$
Short-term:
Secured		15,779		20,087
Unsecured		1,963		794
Long-term:
Current portion, secured		60,798		51,651
Non-current, secured		224,297		215,382
Total borrowings		302,837		287,914

          The short-term loans outstanding as of December 31, 2010 represent RMB denominated loans obtained by Yingchuan, Zhougongyuan, Fujian Huabang and Jinling from financial institutions, which were all settled in 2011. The short-term loans for Yingchuan were obtained from Shanghai Pudong Development Bank with annual interest rates between 7.784% and 8.134% and were guaranteed by Wuliting. The short-term loan for Zhougongyuan was obtained from Agricultural Bank of China with an interest rate of 7.65% and was secured by the pledge of the property, plant and equipment of Zhougongyuan. The short-term loan for Fujian Huabang was obtained from Bank of China with an annual interest rate of 5.35% and was secured by the pledge of a certificate of deposit of Fujian Huabang. The short-term loan for Jinling of US$2,869 was obtained from Agricultural Bank of China with an annual interest rate of 6.1065% and was guaranteed by Fujian Taiyu Investment (Group) Co., Ltd. The short-term loan for Jinling of US$4,454 was obtained from Agricultural Bank of China with an annual interest rate of 5.841% and was secured by the pledge of the property, plant and equipment of Jinling. The short-term loan for Jinling of US$1,963 was obtained from China Construction Bank with an annual interest rate of 6.116% and was unsecured.

          The short-term loans outstanding as of December 31, 2011 represent RMB denominated loans of US$9,141, US$1,111, US$794, US$1,587, US$5,555 and US$2,693 for Jinling, Jinlong, Wuliting, Yingchuan, Ruiyang and Binlangjiang from financial institutions. These loans are due for settlement in 2012. The short-term loans for Jinling of US$7,554 were obtained from Agricultural Bank of China with annual interest rates between 5.8410% and 7.8720% and were secured by the pledge of the property, plant and equipment of Jinling. The short-term loan for Jinling of US$1,587 was obtained from China Construction Bank with an annual interest rate of 6.1160% and was guaranteed by Fujian Taiyu Investment (Group) Co., Ltd. The short-term loan for Jinlong of US$1,111 was obtained from Rural Credit Cooperative Shaowu Jiefang Branch with an annual interest rate of 14.43% and was secured by the pledge of the property, plant and equipment of Jinlong. The short-term loan for Wuliting of US$794 was obtained from Shanghai Pudong Development Bank with an annual interest rate of 9.76% and was guaranteed by Yingchuan. The short-term loan for Yingchuan of US$1,587 was obtained from Shanghai Pudong Development Bank with an annual interest rate of 10.496% and was guaranteed by Wuliting. The short-term loans for Ruiyang of US$5,555 were obtained from Shanghai Pudong Development Bank with annual interest rates between 10.496% and 18% and were guaranteed by Wuliting. The short-term loan for Binglangjiang of US$1,587 was obtained from Agricultural Bank of China with annual interest rates of 6.626% and 6.888% and was secured by the pledge of the property, plant and equipment of Binglangjiang. The short-term loan for Binglangjiang of US$1,106 was obtained from Construction Bank of China with annual interest rates between 6.728% and 7.625% and was secured by the pledge of proceeds from the future electricity sales of Binglangjiang. 

          The long-term loans of US$285,095 outstanding as of December 31, 2010 relate to RMB denominated bank loans obtained by Binglangjiang, Hengda, Xineng, Xiaopengzu, Yingchuan, Wuliting, Jiulongshan, Ruiyang, Zhougongyuan, Yuheng, Wangkeng, Yuanping, Banzhu and Jinling from financial institutions. The loan balances of Yinchuan that were not in compliance with certain debt covenants were classified as current portion of long-term loans as of December 31, 2010.

          The long-term loans of US$267,033 outstanding as of December 31, 2011 relate to RMB denominated bank loans obtained by Binglangjiang, Hengda, Xineng, Xiaopengzu, Yingchuan, Wuliting, Jiulongshan, Ruiyang, Zhougongyuan, Shapulong, Yuheng, Wangkeng, Banzhu, Jinling and its subsidiaries from financial institutions. The loan balances of Yingchuan that were not in compliance with certain debt covenants as of December 31, 2010 were not settled during

F-37

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

the year ended December 31, 2011 and remained classified as current portion of long-term loans as of December 31, 2011.

          As of December 31, 2011, Yuheng was in violation of certain debt covenant provisions relating to the use of funds. As a result, the financial institutions have the right to call the entire outstanding loan balances at any time. Accordingly, the Company classified the loan balances of Yuheng in the amount of US$ 13,014 as current portion of long-term loans in the consolidated balance sheets as of December 31, 2011.

          The interest rates on these long-term loans are variable based on the benchmark rate published by the People’s Bank of China each year. The weighted average interest rate on the long-term loans for the year ended December 31, 2010 and 2011 was 6.26% and 7.00%, respectively. The long-term loans are due from 2012 to 2027 and are secured by the following:

(a) Corporate guarantee by third parties

          Long-term loans amounted to US$44,394 and US$30, 552 as of December 31, 2010 and 2011, respectively, were guaranteed by the following third parties:

	December 31,
	2010		2011
	US$		US$
Guaranteed by:
Guangsha Construction Group Co., Ltd.		13,590		14,284
Fujian Province Anheng Assets Management Co., Ltd. and Fujian Yuneng Power Group Ltd.		8,758		—
Fujian Taiyu Investment (Group) Co., Ltd.		1,510		—
Shaowu City Jinling Power Generation Co., Ltd. and Nanping City Xingshui Co., Ltd.		5,436		5,079
Fujian Taiyu Investment (Group) Co., Ltd., Shaowu City Jinling Power Generation Co., Ltd. and Xiamen Youen Hydropower Development Co., Ltd.		15,100		11,189
		44,394		30,552

(b) Pledge of property, plant and equipment

          As of December 31, 2010, long-term loans of US$271,506 were secured by the pledge of the property, plant and equipment in the amount of US$538,581 of Binglangjiang, Hengda, Xineng, Xiaopengzu, Yingchuan, Wuliting, Ruiyang, Jiulongshan, Zhougongyuan, Shapulong, Yuheng, Yuanping, Wangkeng, Banzhu, Jinling and its subsidiaries.

          As of December 31, 2011, long-term loans of US$251,639 were secured by the pledge of the property, plant and equipment in the amount of US$569,006 of Binglangjiang, Hengda, Xineng, Xiaopengzu, Yingchuan, Wuliting, Ruiyang, Jiulongshan, Zhougongyuan, Shapulong, Yuheng, Wangkeng, Banzhu, Jinlong, Jinwei and Jintang.

(c) Pledge of proceeds from future electricity sales

          As of December 31, 2010, long-term loans of US$135,707 were secured by the proceeds from future electricity sales of Binglangjiang, Hengda, Xineng, Xiaopengzu, Zhougongyuan, Jiulongshan, Yuanping, Wangkeng, Jinling and Jinlong.

          As of December 31, 2011, long-term loans of US$115,978 were secured by the proceeds from future electricity sales of Binglangjiang, Hengda, Xineng, Xiaopengzu, Zhougongyuan, Jiulongshan, Wangkeng, Jinling and Jinlong.

          Maturities of long-term loans for the five years succeeding December 31, 2011 are as follows:

	US$
2012		51,651
2013		37,082
2014		36,622
2015		31,511
2016		31,908
Thereafter		78,259
		267,033

F-38

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

15. OTHER NON-CURRENT LIABILITIES

          Other non-current liabilities as of December 31, 2011 mainly represent deferred government grant of US$103 relating to Banzhu and net defined benefit obligation of US$129 (Note 20(b)).

          The government grant of Banzhu is recognized as income over the periods necessary to match it on a systematic basis with the related costs which it is intended to compensate. During the years ended December 31, 2009, 2010 and 2011, USnil, US$6 and US$3 has been recognized as a reduction to cost of revenues, respectively.

16. CONVERTIBLE REDEEMABLE PREFERRED SHARES

          In 2008, the Company issued 150,025 Series A Preferred Shares and 129,000 Series B Preferred Shares for an aggregate purchase price of US$279,025 or US$1,000 per share. In 2009, the Company issued 20,000 Series C Preferred Shares for an aggregate purchase price of US$20,000 or US$1,000 per share. The proceeds have been used to fund the Company’s acquisition of hydroelectric power generating assets and expansion of the Company’s existing hydroelectric power projects in the PRC, to repay all the amounts due and for the Company’s working capital purposes. The initial carrying amount of the Series A, Series B and Series C Preferred Shares was measured at their respective issuance price of US$150,025, US$129,000 and US$20,000, net of issuance cost of US$10,569, US$4,134 and US$1,872, respectively.

          The Series A, Series B and Series C Preferred Shares were classified as mezzanine equity from their respective issuance date to the closing of the Company’s IPO on January 25, 2010, as these preferred shares were redeemable at the option of the holders on or after an agreed upon date. Upon the listing of the Company’s shares on the New York Stock Exchange on January 25, 2010, all of the issued and outstanding Series A, Series B and Series C Preferred Shares and the related accrued cumulative dividends were automatically converted into ordinary shares. The conversion options embedded in the preferred shares, which provided the options to convert into the Company’s ordinary shares, did not qualify for bifurcation accounting because the conversion option was clearly and closely related to the host instrument and the underlying ordinary shares were not publicly traded nor readily convertible into cash. No beneficial conversion features was recognized for the Series A, Series B and Series C Preferred Shares at the respective commitment date because the most favorable conversion price for each series of the convertible redeemable preferred shares was higher than the fair value of the ordinary shares. The Company determined the fair value of ordinary shares with the assistance of an independent valuation firm.

          The Company chose to recognize changes in the redemption value immediately as they occurred and adjusted the carrying value of the Series A, Series B and Series C Preferred Shares to equal the redemption value at the end of each reporting period. An accretion charge of US$10,569 and US$4,134 related to Series A and Series B Preferred Shares, respectively, was recorded as a reduction of income available to ordinary shareholders for the year ended December 31, 2008. An accretion charge of US$1,872 related to Series C Preferred Shares was recorded as a reduction of income available to ordinary shareholders for the year ended December 31, 2009.

          No cash dividends were declared by the Company on the Series A, Series B and Series C Preferred Shares for the years ended December 31, 2008 and 2009 and for the period from January 1, 2010 to January 25, 2010. A cumulative dividend of US$14,680 and US$5,531 for Series A and Series B Preferred Shares, respectively, was accrued and recorded as a reduction of income available to ordinary shareholders for the year ended December 31, 2008. A cumulative dividend of US$19,836, US$14,412 and US$356 for Series A, Series B and Series C Preferred Shares, respectively, was accrued and recorded as a reduction of income available to ordinary shareholders for the year ended December 31, 2009. A cumulative dividend of US$1,989, US$1,412 and US$162 for Series A, Series B and Series C Preferred Shares, respectively, was accrued and recorded as a reduction of income available to ordinary shareholders for the period from January 1, 2010 to January 25, 2010.

          Pursuant to the preferred shares subscription agreements, the Series A, Series B and Series C Preferred Shares shall automatically be converted into ordinary shares based on an adjusted conversion price equivalent to 60%, 60% and 70% of the IPO price, respectively, on the date of a qualified IPO. As a result, upon the closing the Company’s IPO on January 25, 2010, (i) the Series A Preferred Shares and related accrued cumulative dividends amounting to US$186,530 were converted in to 63,016,780 ordinary shares at an adjusted conversion price of US$2.96, or 60% of the IPO price of US$4.93; (ii) the Series B Preferred Shares and related accrued cumulative dividends amounting to US$150,355 were converted in to 50,795,457 ordinary shares at an adjusted conversion price of US$2.96, or 60% of the IPO price of US$4.93; and (iii) the Series C Preferred Shares and related accrued cumulative dividends amounting to US$20,518 were converted in to 5,941,613 ordinary shares at an adjusted conversion price of US$3.45, or 70% of the IPO price of US$4.93.

F-39

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

          In accordance with ASC subtopic 470-20 (“ASC 470-20”), Debt: Debt with Conversion and Other Options, changes to the conversion terms that would be triggered by future events not controlled by the issuer are accounted for as contingent beneficial conversion features and the intrinsic value of such conversion options would not be recognized until and unless a triggering event occurred. Since the terms of the Series A, Series B and Series C Preferred Shares do not permit the number of shares that would be received upon conversion if an IPO occurs to be calculated at the commitment date, the conversion price adjustment triggered by the occurrence of an IPO was accounted for as a contingent beneficial conversion feature and was recognized upon the Company’s IPO based on the excess number of ordinary shares that would be received upon conversion at the adjusted conversion price over the number of shares that would have been received prior to the occurrence of the contingent event multiplied by the commitment date share price. A contingent beneficial conversion feature of US$6,990, US$5,040 and US$222 was recognized for the Series A, Series B and Series C Preferred Shares, respectively, through a credit to additional paid-in capital on January 25, 2010.

          In accordance with ASC 470-20, a discount resulting from the accounting for a beneficial conversion option for convertible instruments that do not have a stated redemption date is amortized from the date of issuance to the earliest conversion date. Since the holders of the Series A, Series B and Series C Preferred Shares can convert the preferred shares anytime after their respective issuance date, the beneficial conversion features of US$6,990, US$5,040 and US$222 for the Series A, Series B and Series C Preferred Shares, respectively, were immediately amortized as a reduction of income available to ordinary shareholders upon their recognition on January 25, 2010.

          As of December 31, 2010 and 2011, 6,000,000 preferred shares at par value of US$0.001 per share were authorized and no preferred shares were issued and outstanding.

17. WARRANTS

          On November 10, 2006, the Founding Shareholders of the Company purchased 375,000 units of securities issued by the Company through China Hydro LLC (“CHL”), a limited liability company formed under the laws of the State of Delaware which holds the equity interest in the Company for the founding shareholders. Each unit consists of one ordinary share and two warrants each to purchase one ordinary share of the Company at US$5.00 per share (“Founders’ Warrants”). The exercise period of the Founders’ Warrants commences on the date of issuance and expires on the earlier of November 10, 2011 or the redemption of the warrants by the Company. The Founders’ Warrants can be redeemed at the option of the Company at any time during the exercise period at US$0.001 per warrant, provided that the last independent bid price of the ordinary share exceeds US$8.50 per share.

          On November 10, 2006, the Company also issued two warrants to Morgan Joseph, as part of the payment for services rendered by Morgan Joseph on the issuance of convertible notes (the “Notes”). One warrant allows Morgan Joseph to purchase 550,000 units of securities (each unit consists of one ordinary share and two warrants each to purchase one ordinary share of the Company at US$5.00 per share) and the other warrant allows Morgan Joseph to purchase 283,333 units of securities (each unit consists of one ordinary share and four warrants each to purchase one ordinary share of the Company at US$5.00 per share) issued by the Company at US$6.60 per unit (“Morgan Joseph Warrants”). The exercise period of the Morgan Joseph Warrants commences on the date of issuance and expires on November 10, 2011. The Morgan Joseph Warrants provide for a cashless exercise option. The Morgan Joseph Warrants expired unexercised.

          On April 11, 2007, Vicis Capital Master Fund (“Vicis”), JMG Capital Partners, LLP and JMG Triton Offshore Fund Limited (collectively, “JMG”), which are holders of the US$50,000 convertible notes (the “Notes”) issued by the Company in November 2006, approved the consummation of a business combination by the Company. Pursuant to the Notes agreements, Vicis converted its US$41,000 Notes into 6,833,333 ordinary shares and 18,666,666 warrants each to purchase one ordinary share at US$5.00 per share while JMG elected not to convert its US$9,000 Notes and received 666,666 warrants each to purchase one ordinary share at US$5.00 per share. The warrants issued to Vicis and JMG (collectively, the “Holders’ Warrants”) have terms identical to the Founders Warrants in that the Company has an option to redeem at any time at US$0.001 per warrant, provided that the last independent bid price of the ordinary share exceeds US$8.50 per share, and that the exercise period commences on the date of issuance and expires on the earlier of November 10, 2011 or the redemption of the warrants by the Company. The Holders’ Warrants issued to JMG expired unexercised.

          Under ASC sub-topic 815-40 (“ASC 815-40”), Derivatives and Hedging: Contracts in Entity’s Own Equity, if a contract could potentially be cash settled, and such settlement is not within the control of the issuer, the derivative is accounted for as an asset or liability, and changes in fair value are recognized in the consolidated statements of operations. Upon issuance of the Founders’ Warrants and Holders’ Warrants and as of December 31, 2010, the Company evaluated ASC 815-40-25-7 to ASC 815-40-25-35 and concluded that the warrants could only be physical settled or net-share settled but not net-cash settled. Therefore, the Founders’ Warrants and Holders’ Warrants have been classified as equity since their respective issuance date and the fair value at their respective commitment date was determined to be minimal by management with the assistance of an independent valuation firm.

F-40

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

          On January 28, 2008, the Company issued another warrant to Morgan Joseph, as part of the payment for services rendered by Morgan Joseph on the issuance of the Series A Preferred Shares. The warrant allows Morgan Joseph to purchase (i) up to 15,000 Series A Preferred Shares at US$1,100 per share prior to the closing of a qualified public offering or (ii) up to such number of ordinary shares automatically converted into from 15,000 Series A Preferred Shares upon the closing of a qualified public offering at 110% of the then-effective conversion price per Series A Preferred Share (“Morgan Joseph Preferred Shares Warrant”). The exercise period of the Morgan Joseph Preferred Shares Warrant commences on the date of issuance and expires on January 28, 2013. The Morgan Joseph Preferred Shares Warrant provides for a cashless exercise option.

          The Morgan Joseph Preferred Shares Warrant was classified as a liability from its issuance date to the closing of the Company’s IPO on January 25, 2010, in accordance with ASC sub-topic 480-10 (“ASC 480-10”), Distinguishing Liabilities from Equity: Overall, as Morgan Joseph is entitled to a cashless exercise into Series A Preferred Shares which are contingently redeemable for cash. The fair value of the Morgan Joseph Preferred Shares Warrant was US$899, US$14,333 and US$13,968 at the time of issuance and as of December 31, 2009 and January 25, 2010, respectively. A loss of US$13,793 and an income of US$365 from the change in fair market value of the Morgan Joseph Preferred Shares Warrant was recognized in the statements of operations during the years ended December 31, 2009 and 2010, respectively. The fair value of the Morgan Joseph Preferred Shares Warrant was determined with the assistance of an independent valuation firm.

          Upon the closing of the IPO on January 25, 2010, all of the outstanding Series A Preferred Shares were automatically converted into ordinary shares. As a result, pursuant to the preferred shares subscription agreement, the Morgan Joseph Preferred Shares Warrant automatically became a warrant that allows Morgan Joseph to purchase up to 4,606,880 ordinary shares at US$3.26 per share and was reclassified from liability to equity (“Morgan Joseph Converted Warrant”). The Morgan Joseph Converted Warrant commences on the date of the IPO, or January 25, 2010 and expires on January 28, 2013. The Morgan Joseph Converted Warrant provides for a cashless exercise option.

          On January 25, 2010, the Company completed an IPO, whereby the Company issued 6,000,000 units of securities at US$16.00 per unit. Each unit consists of one American Depositary Share (“ADS”) and one warrant (“IPO Warrant”). Each ADS represents three ordinary shares and each IPO Warrant entitles the holder to purchase three ordinary shares for an exercise price of US$15.00. The Company determined that the relative fair value of the ADSs and the IPO Warrants was US$14.80 and US$1.20, respectively, and allocated the sales proceeds of US$16.00 per unit of securities to the ADS and the IPO Warrant based on their relative fair values. The exercise period of the IPO Warrants commences on the date of issuance and expires on the earlier of January 27, 2014 or the redemption of the warrants by the Company. The IPO Warrants can be redeemed at the option of the Company at any time during the exercise period at US$0.01 per warrant, provided that the sales price per ADS equals or exceeds US$23 for any 20 trading days within a 30-trading day period before the redemption.

          On January 25, 2010, the Company issued a warrant to Broadband Capital Management LLC (“Broadband Capital”), as part of the payment for services rendered by Broadband Capital on the Company’s IPO, for US$100.00. The warrant allows Broadband Capital to purchase a number of units of securities equal to an aggregate of 4% of the units of securities sold in the IPO at an exercise price of 120% of the IPO price, or US$19.20 per unit (the “Underwriter’s Warrants”). The warrants underlying the units of securities issuable upon exercise of the Underwriter’s Warrant are equivalent to the IPO Warrants, except that the Underwriter’s Warrants are exercisable at 120% of the IPO warrant exercise price, or $18 for three ordinary shares. The Underwriter’s Warrants are exercisable on a cashless basis, are non-redeemable and have a five-year term.

          Upon the closing of the Company’s IPO on January 25, 2010 and as of December 31, 2010 and 2011, in accordance with ASC 815-40, the Morgan Joseph Converted Warrant, IPO Warrants and Underwriter’s Warrants were concluded to be indexed solely to the Company’s own stock since the Warrants do not contain an exercise contingency based on an observable market or an observable index, and the settlement amount would equal to the difference between the fair value of a fixed number of the Company’s ordinary shares and a fixed exercise price. In addition, the Company evaluated ASC 81-40-25-7 to ASC 815-40-25-35 and concluded that the Morgan Joseph Converted Warrant, IPO Warrants and Underwriter’s Warrants could only be physical settled or net-share settled but not net-cash settled. Therefore, the Morgan Joseph Converted Warrant, IPO Warrants and Underwriter’s Warrants have been classified as equity since the Company’s IPO on January 25, 2010.

          The Morgan Joseph Converted Warrant, IPO Warrants and Underwriter’s Warrants will continue to be reported as equity until such time as the warrants are exercised, expire, or become cash-settleable. In the event of a reclassification from equity to liability, the warrants will be measured at a new fair value as of the reclassification date with the change from the existing carrying value to the new fair value as an adjustment to shareholders’ equity.

          On July 26, 2010, the directors of CHL resolved to distribute its ordinary shares in the Company and the Founders’ Warrants to Founding Shareholders in proportion of their shareholding percentage at nil consideration. In connection with the distribution, CHL distributed to Sam Shoen and Shoen’s Trusts (collectively, “Shoen”) 66,964 Founders’ Warrants (the “Shoen’s Warrants”). Except for the Shoen’s Warrants, all of the other Founders’ Warrants expired unexercised.

F-41

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

          On August 18, 2011, the Company amended the exercise price of the Holder’s Warrants held by Vicis to US$1.1544 per share. Immediately after the amendment, Vicis exercised 8,662,509 of the warrants to purchase 8,662,509 ordinary shares of the Company at the reduced exercise price of US$1.1544 per share. Vicis holds 10,004,157 warrants after the exercise. On August 19, 2011, the Company further amended three other terms of the remaining 10,004,157 warrants held by Vicis (the “Vicis’ Amended Warrants”) by (i) introducing full-ratchet anti-dilution protection where the exercise price is further adjusted to equal the dilutive price if the Company issues or sells any shares or equity-linked instrument at a price per share or new exercise price per share less than the reduced exercise price of US$1.1544; (ii) providing a cashless exercise option; and (iii) increasing the hurdle for the Company’s exercise of its call option over the Holders’ Warrants, from a bid price equals or exceeds US$8.50 per share to US$17.66 per share.

          On October 27, 2011, the Company amended the exercise price of the Shoen’s Warrants to US$1.15 per share. Immediately after the amendment, Shoen exercised 31,072 of the warrants to purchase 31,072 ordinary shares of the Company at the reduced exercise price of US$1.15 per share. After the exercise, the Company further amended three other terms of the remaining 35,892 warrants held by Shoen (the “Shoen’s Amended Warrants) by (i) introducing full-ratchet anti-dilution protection where the exercise price is further adjusted to equal the dilutive price if the Company issues or sells any shares or equity-linked instrument at a price per share or new exercise price per share less than the reduced exercise price of US$1.15; (ii) providing a cashless exercise option; and (iii) increasing the hurdle for the Company’s exercise of its call option over the Founders’ Warrants, from a bid price equals or exceeds US$8.50 per share to US$17.66 per share.

          The Company evaluated ASC 815-40-15 and concluded that the 10,004,157 Vicis’ Amended Warrants and the 35,892 Shoen’s Amended Warrants are not indexed to its own stock due to the full-ratchet anti-dilution protection because the issuance of shares or an-equity-linked instrument in the future is not an input to the determination of the fair value of the settlement amount of a fixed-for-fixed or equity instrument. Therefore, the Vicis’ Amended Warrants and the Shoen’s Amended Warrants were reclassified from equity to liability. In accordance with ASC 815-40-35, the change in fair value of the Vicis’s Amended Warrants and the Shoen’s Warrants during the period these warrants were classified as equity was accounted for as an adjustment to stockholders’ equity with any subsequent change in fair value being adjusted through earnings. The aggregate fair value of the Vicis’ Amended Warrants and the Shoen’s Amended Warrants were US$1,391 and US$440 at the time of amendment and as of December 31, 2011, respectively. Thus, a debit to additional paid-in capital of US$1,391 and a gain of US$951 from the change in fair value of the Vicis’Amended Warrants and Shoen’s Amended Warrants were recognized in the statements of shareholders’ equity and the statements of operations, respectively, during the year ended December 31, 2011.

          The fair values of the outstanding Vicis’s Amended Warrants and Shoen’s Amended Warrants, which are classified as liabilities, were estimated at their commitment date and December 31, 2011 using the following assumptions:

Commitment date/ year-end date	Vicis’ Amended Warrants August 18, 2011			Shoen’s Amended Warrants October 27, 2011			Vicis’/Shoen’s Amended Warrants December 31, 2011
Average risk-free rate of return		0.24	%		0.24	%		0.24	%
Expected term/life		2.38 years			2.18 years			2.00 years
Volatility rate		52.52	%		51.20	%		72.00	%
Expected dividend yield		—			—			—
Fair value of ordinary share		0.14			0.04			0.04
Estimated forfeiture rate		0	%		0	%		0	%

          The fair values of the Morgan Joseph Converted Warrants, IPO Warrants and Underwriter’s Warrants, which are classified as equity, were estimated at their commitment date using the following assumptions:

	Morgan Joseph Converted Warrant			IPO Warrants			Underwriter’s Warrants
Commitment date	January 25, 2010			January 25, 2010			January 25, 2010
Average risk-free rate of return		2.40	%		2.40	%		2.40	%
Expected term/life		3.00 years			4.99 years			4.99 years
Volatility rate		66.00	%		66.00	%		66.00	%
Expected dividend yield		—			—			—
Fair value of ordinary share		4.93			4.93			4.93
Estimated forfeiture rate		0	%		0	%		0	%

F-42

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

          The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying warrants and the fair value of the Company’s ordinary shares as of December 31, 2011, for those warrants that have an exercise price currently below the fair value of the Company’s ordinary shares. As of December 31, 2011, the Company has warrants outstanding to purchase an aggregate 34,086,929 ordinary shares. None of these warrants has an exercise price below the fair value of the Company’s ordinary shares, resulting in an aggregate intrinsic value of US$nil.

          All warrants were vested as of the date they were issued, except for the Underwriter’s Warrants which vested 540 days after the IPO on July 19, 2011. Except for the exercise and expiration of warrants described above, no other warrants were redeemed, forfeited, cancelled or exercised for the years ended December 31, 2009, 2010 and 2011.

18. SHARE CAPITAL

          The Company’s authorized ordinary share capital was 400,000,000 shares at par value of US$0.001 per share as of December 31, 2010 and 2011. There were 153,295,516 and 161,989,097 ordinary shares issued and outstanding as of December 31, 2010 and 2011, respectively.

          On January 25, 2010, the Company completed an IPO, whereby the Company issued 6,000,000 units of securities at US$16.00 per unit. Each unit consists of one ADS priced at US$14.80 and one warrant priced at US$1.20. Each ADS represents three ordinary shares and each warrant entitles the holder to purchase three ordinary shares for an exercise price of US$15.00. Upon the closing of the Company’s IPO on January 25, 2010, all of the issued and outstanding Series A, Series B and Series C Preferred Shares and the related accrued cumulative dividends were automatically converted into 63,016,780, 50,795,457 and 5,941,613 ordinary shares, respectively. There were no preferred shares issued and outstanding as of December 31, 2010 and 2011.

          On August 19, 2011 and October 27, 2011, Vicis and Shoen exercised a portion of their warrants to purchase 8,662,509 ordinary shares at US$1.1544 per share and 31,072 ordinary shares at US$1.15 per share from the Company, respectively (Note 17).

          The Group has not paid or declared any dividends on ordinary shares to date. The payment of dividends in the future will be contingent upon the Group’s revenues and earnings, if any, capital requirements and general financial condition subsequent to the completion of a business combination. The payment of dividends will be subject to the discretion of the Group’s board of directors and subject to the requirements of Cayman Islands’ laws.

F-43

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

19. BASIC AND DILUTED LOSS PER SHARE

          Basic and diluted loss per share for the years ended December 31, 2009, 2010 and 2011 are calculated as follows:

	For the Years Ended December 31,
	2009			2010			2011
	US$			US$			US$
Numerator for basic loss per share:
Loss attributable to ordinary shareholders		(55,872	)		(12,073	)		(45,389	)
Cumulative dividends on Series A convertible redeemable preferred shares		—			—			—
Cumulative dividends on Series B convertible redeemable preferred shares		—			—			—
Cumulative dividends on Series C convertible redeemable preferred shares		—			—			—
Accretion of beneficial conversion feature on Series A convertible redeemable preferred shares		—			—			—
Accretion of beneficial conversion feature on Series B convertible redeemable preferred shares		—			—			—
Accretion of beneficial conversion feature on Series C convertible redeemable preferred shares		—			—			—
Changes in redemption value of Series A convertible redeemable preferred shares		—			—			—
Changes in redemption value of Series B convertible redeemable preferred shares		—			—			—
Changes in redemption value of Series C convertible redeemable preferred shares		—			—			—
Numerator for diluted loss per share		(55,872	)		(12,073	)		(45,389	)
Denominator:
Weighted average number of ordinary shares outstanding—basic		15,541,666			143,253,450			156,505,076
Dilutive effect of convertible securities:
Warrants		—			—			—
Convertible redeemable preferred shares		—			—			—
Share options.		—			—			—
Weighted average number of ordinary shares outstanding—diluted		15,541,666			143,253,450			156,505,076
Loss per share—basic and diluted		(3.59	)		(0.08	)		(0.29	)
From continuing operations		(3.59	)		(0.09	)		(0.29	)
From discontinued operations		0.00			0.01			(0.00	)

          The Group had securities outstanding which could potentially dilute basic loss per share in the future, but these securities were excluded from the computation of diluted loss per share in the years ended December 31, 2009, 2010 and 2011, as their effects would have been anti-dilutive. Such outstanding securities consist of warrants and share options in 2009, 2010 and 2011, and convertible redeemable preferred shares in 2009 and 2010.

20. EMPLOYEE BENEFIT PLANS

(a) Defined contribution plan

          The Group’s full time employees in the PRC participate in a government-mandated multi-employer defined contribution plan pursuant to which certain medical care unemployment insurance, employee housing fund and other welfare benefits are provided to employees. PRC labor regulations require the Group to accrue for these benefits based on 26.7% to 44.9% of the employees’ salaries, subject to a certain cap limit, depending on the location of employment. The total contribution for such employee benefits, which was expensed as incurred, was US$605, US$810 and US$1,045 for the years ended December 31, 2009, 2010 and 2011, respectively. The Group has no additional legal obligations or liabilities for the benefits beyond the paid and accrued amounts.

F-44

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

          In November 2008, the New York office of the Company established a 401(k) retirement plan, which requires a dollar by dollar matching contribution from the employer up to 3% of the employee’s annual salary. The total contribution for the 401(k) retirement plan, which was expensed as incurred, was US$26, US$77 and US$155 for the years ended December 31, 2009, 2010 and 2011, respectively. The Group has no additional legal obligation or liabilities for the benefits beyond the paid and accrued amounts.

(b) Defined benefit plan

          The Company established a defined benefit plan with a retirement plan service agent for two executive officers with an effective date of January 1, 2010. The guaranteed retirement benefit under this defined benefit plan is based on the two executive officers’ salaries and length of service periods. The benefit obligation, net periodic benefit cost, fair value of plan contributed assets and changes in the funded status of the plan were insignificant as of and for the years ended December 31, 2010 and 2011 based on the latest actuarial valuation dated January 13, 2012.

21. INTEREST EXPENSE

          Interest expense for the years ended December 31, 2009, 2010 and 2011 consist of:

	For the Years Ended December 31,
	2009		2010		2011
	US$		US$		US$
Interest on bank loans		12,144		14,305		19,975
Accrued interest on unrecognized tax benefits (Note 12)		183		237		514
Amortization of debt issuance costs		23		19		19
Accretion of guarantee fee payable		10		—		—
Interest penalty to original shareholders of acquired subsidiaries		401		129		2,503
Interest on loans from unrelated parties		133		2		2,567
Bank charges		409		343		718
Others		56		132		254
		13,359		15,167		26,550

22. COMMITMENTS AND CONTINGENCIES

(a) Operating lease commitments

          The Group has entered into certain operating leasing arrangements relating to the lease of the Group’s office premises. Payments made under operating leases are expensed on a straight-line basis over the term of the lease. Rental expenses under operating leases for the years ended December 31, 2009, 2010 and 2011 were US$691, US$766 and US$912 respectively.

          Future minimum lease payments for non-cancellable operating leases as of December 31, 2011 are as follows:

	US$
2012		478
2013		344
2014		1
2015 and thereafter		—
Total		823

(b) Capital commitments

          Capital commitments as of December 31, 2011 were approximately US$960 (RMB6,049), representing contracted but unpaid amounts for the purchase of property, plant and equipment by Binglangjiang and Husahe.

F-45

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

(c) Other commitments

         During the year ended December 31, 2011, the Company entered into compensation agreements with certain land owners in the Fujian Province, the PRC, who lost the usage of their land due to the operation of the Company’s hydroelectric power projects in the areas. These agreements have terms ranging from 5 to 43 years from the date of signing of the compensation agreements. The annual compensation is based on the relevant land acres and agreed compensation rate per acre. The total compensation costs paid to the land owners, where were recorded in “cost of revenues”, were US$166 for the year ended December 31, 2011.

          Future minimum compensation costs to be paid to the land owners for the five years succeeding December 31, 2011 are as follows:

	US$
2012		141
2013		146
2014		144
2015		144
2016		144
Thereafter		3,884
Total		4,603

(d) Loan guarantee commitments

          Pursuant to an agreement signed in May 2011 between Wuliting and Guangsha Construction Group Co., Ltd. (“Guangsha”), the original shareholder of Wuliting, Guangsha agreed to provide guarantee on the bank loans of Wuliting amounting to RMB90,000 from April 1, 2011 to April 1, 2013. In connection with the loan guarantee provided by Guangsha, the Company signed an agreement with Guangsha to provide a counter guarantee to Guangsha’s guarantee obligation. Pursuant to the counter guarantee agreement, the Company is obligated to reimburse Guangsha for all bank loans, interests, penalties and all other related costs Guangsha guaranteed in the event that Wuliting is not able to fulfill its loan payment obligations when become due. In addition, pursuant to the counter guarantee agreement, the Company agreed to pay Guangsha an annual guarantee fee based on an annual interest rate of 2.25% on the outstanding loan balances of Wuliting. The amount of the guarantee fee was US$239K for the year ended December 31, 2011.

(e) Other contingencies

          As of December 31, 2011, the Group has not obtained formal title certificates with respect to the land that the Group used at the hydroelectric power projects of Wuliting, Zhougongyuan, Binglangjiang, Jinlong, Jintang, Jinling and Jinwei with a total area of approximately 2,571,106 meter square. The management is 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 the Group’s operating companies. In addition, the Group has not passed the completion acceptance procedure for hydroelectric power projects of Wangkeng, Banzhu, Shapulong, Jinlong, Jintang, Jinwei and Jinling. Moreover, the hydroelectric power projects of Husahe and Jinling cannot verify whether they have passed completion acceptance due to the loss of files caused by flood in 2004. The management is in the process of performing the completion acceptance procedure for these hydroelectric power projects. In the opinion of management, the likelihood of not obtaining the formal title certificates and completing the acceptance procedures is remote based on current facts and circumstances.

          There were no significant contingencies as of December 31, 2010 and 2011.

23. OTHER (LOSS) INCOME, NET

          Other (loss) income, net for the years ended December 31, 2009, 2010 and 2011 consists of:

	For the Years Ended December 31,
	2009			2010			2011
	US$			US$			US$
Change in value of guarantee assets		(42	)		—			—
Change in value of guarantee liabilities		42			—			—
Fees for supporting service provided to an equity investee		32			—			—
Remeasurement gain on pre-existing interest in an equity investee at acquisition date fair value		105			—			—
Loss on disposal of property, plant and equipment		(276	)		(65	)		(264	)
Reimbursement from ADS depositary bank		—			446			527
Others		(86	)		(259	)		(611	)
Other (loss) income, net		(225	)		122			(348	)

          For the years ended December 31, 2010 and 2011, a net reimbursement amounting to US$446 and US$527, respectively, was received from Bank of New York Mellon, the Company’s ADS depositary bank, for the establishment of an ADS depositary receipt facility after the Company’s IPO.

F-46

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

24. SEGMENT AND GEOGRAPHIC INFORMATION

          The Group follows ASC 280-10 for disclosure of segment information. The Group’s chief operating decision maker, who has been identified as the CEO, relies upon financial information by provinces with operations in the PRC when making decisions about allocating resources and assessing the performance of the Group. For the years ended December 31, 2009, 2010 and 2011, the Group operated and managed its business as four operating and reportable segments, namely the Yunnan Province segment, the Sichuan Province segment, the Zhejiang Province segment and the Fujian Province segment. As the Group’s long-lived assets and revenues are substantially all located in and derived from the PRC, no geographical segments are presented.

          The Group’s segment information as of and for the year ended December 31, 2009 is as follows:

	Yunnan Province			Sichuan Province			Zhejiang Province			Fujian Province			Unallocated			Eliminations			Consolidated
	US$			US$			US$			US$			US$			US$			US$
Revenues		2,966			939			18,164			12,258			—			—			34,327
Cost of revenues		(1,193	)		(583	)		(9,774	)		(6,525	)		—			1,617			(16,458	)
General and administrative expenses including share-based compensation expense of US$571		(330	)		(203	)		(1,178	)		(517	)		(6,775	)		—			(9,003	)
Interest income		115			38			57			18			319			(37	)		510
Interest expense		(303	)		—			(7,020	)		(5,685	)		(388	)		37			(13,359	)
Change in fair value of warrant liabilities		—			—			—			—			(13,793	)		—			(13,793	)
Exchange loss		—			(1	)		(5	)		(7	)		(10	)		—			(23	)
Share of losses in an equity investee		—			—			—			—			(70	)		—			(70	)
Other (loss) income, net		(2	)		(1	)		(9	)		(265	)		1,760			(1,708	)		(225	)
Income tax expense		(166	)		(51	)		(403	)		(680	)		(133	)		—			(1,433	)
Net income (loss) from continuing operations		1,087			138			(168	)		(1,403	)		(19,090	)		(91	)		(19,527	)
Net income from discontinued operations (net of income tax expense of US$59)		—			—			—			8			—			91			99
Net income (loss)		1,087			138			(168	)		(1,395	)		(19,090	)		—			(19,428	)
Net loss attributable to noncontrolling interests		—			—			—			32			—			—			32
Net income (loss) attributable to China Hydroelectric Corporation shareholders		1,087			138			(168	)		(1,363	)		(19,090	)		—			(19,396	)
Total assets		42,770			14,649			311,685			204,347			337,472			(317,090	)		593,833
Total liabilities		(15,494	)		(556	)		(152,898	)		(112,187	)		(34,506	)		23,002			(292,639	)
Capital expenditures		7,661			1,616			1,826			1,732			141			—			12,976
Depreciation and amortization expenses		845			338			6,887			3,881			78			—			12,029

F-47

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

          The Group’s segment information as of and for the year ended December 31, 2010 is as follows:

	Yunnan Province			Sichuan Province			Zhejiang Province			Fujian Province			Unallocated			Eliminations			Consolidated
	US$			US$			US$			US$			US$			US$			US$
Revenues		8,822			660			32,959			20,840			(1	)		—			63,280
Cost of revenues		(4,059	)		(597	)		(14,414	)		(7,537	)		1			2,636			(23,970	)
General and administrative expenses including share-based compensation expense of US$3,615		(605	)		(148	)		(1,319	)		(1,195	)		(16,040	)		—			(19,307	)
Interest income		9			16			8			1,119			557			(519	)		1,190
Interest expense		(2,945	)		—			(7,493	)		(5,199	)		(49	)		519			(15,167	)
Change in fair value of warrant liabilities		—			—			—			—			365			—			365
Exchange loss		—			—			—			(452	)		(403	)		—			(855	)
Other (loss) income, net		(4	)		29			(133	)		(66	)		3,087			(2,791	)		122
Income tax benefit (expense)		204			1			(2,138	)		(1,541	)		(83	)					(3,557	)
Net income (loss) from continuing operations		1,422			(39	)		7,470			5,969			(12,566	)		(155	)		2,101
Net income from discontinued operations (net of income tax benefit of US$197)		—			—			—			1,729			—			155			1,884
Net income (loss)		1,422			(39	)		7,470			7,698			(12,566	)		—			3,985
Net income attributable to noncontrolling interests		—			—			—			(243	)		—			—			(243	)
Net income (loss) attributable to China Hydroelectric Corporation shareholders		1,422			(39	)		7,470			7,455			(12,566	)		—			3,742
Total assets		183,888			14,910			305,927			396,388			435,361			(506,018	)		830,456
Total liabilities		(117,138	)		(420	)		(138,055	)		(202,276	)		(20,578	)		64,994			(413,473	)
Capital expenditures		879			569			250			317			1,380			—			3,395
Depreciation and amortization expenses		2,660			373			9,392			3,853			92			—			16,370

F-48

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

          The Group’s segment information as of and for the year ended December 31, 2011 is as follows:

	Yunnan Province			Sichuan Province			Zhejiang Province			Fujian Province			Unallocated			Eliminations			Consolidated
	US$			US$			US$			US$			US$			US$			US$
Revenues		13,806			555			25,382			17,801			—			—			57,544
Cost of revenues		(8,349	)		(568	)		(15,034	)		(12,337	)		—			3,743			(32,545	)
General and administrative expenses including share-based compensation expense of US$10,479		(1,519	)		(86	)		(1,148	)		(2,408	)		(23,867	)		—			(29,028	)
Interest income		180			10			128			1,736			66			(2,018	)		102
Interest expense		(8,468	)		—			(8,565	)		(11,462	)		(73	)		2,018			(26,550	)
Change in fair value of warrant liabilities		—			—			—			—			951			—			951
Exchange loss		(28	)		—			—			(244	)		(579	)		—			(851	)
Impairment loss on goodwill		(5,260	)		—			—			(6,128	)								(11,388	)
Impairment loss on long-lived assets														(11,601	)		11			(11,590	)
Other (loss) income, net		(285	)		—			(36	)		(172	)		4,033			(3,888	)		(348	)
Income tax (expense) benefit		(142	)		5			(843	)		93			(662	)		—			(1,549	)
Net loss from continuing operations		(10,065	)		(84	)		(116	)		(13,121	)		(31,732	)		(134	)		(55,252	)
Net (loss) income from discontinued operations (net of income tax expense of US$79)		—			—			—			(181	)		—			143			(38	)
Net (loss) income		(10,065	)		(84	)		(116	)		(13,302	)		(31,732	)		9			(55,290	)
Net loss attributable to noncontrolling interests		—			—			—			2,546			7,355			—			9,901
Net (loss) income attributable to China Hydroelectric Corporation shareholders		(10,065	)		(84	)		(116	)		(10,756	)		(24,377	)		9			(45,389	)
Total assets		200,681			15,896			318,616			374,296			421,650			(516,224	)		814,915
Total liabilities		(133,670	)		(753	)		(138,688	)		(185,330	)		(20,498	)		58,902			(420,037	)
Capital expenditures		1,763			1,128			3,031			645			970			(5	)		7,532
Depreciation and amortization expenses		5,181			344			9,837			7,281			115			—			22,758

25. SHARE-BASED PAYMENT

          On August 18, 2008, the board of directors (the “Board”) of the Company adopted the China Hydroelectric Corporation 2008 Share Incentive Plan (the “2008 Plan”) that provides for the issuance of share-based awards to purchase up to 12,000,000 ordinary shares. The effectiveness of the 2008 Plan is subject to the approval of the Company’s shareholders within twelve months from the date on which the 2008 Plan is adopted by the Board. Under the 2008 Plan, the Company may grant share options including incentive stock options and non-qualified stock options, equity appreciation rights, restricted ordinary shares, restricted ordinary share units, performance-based grants of ordinary shares, performance units and other equity-based or cash-based awards to employees of the Group, consultants and other individuals who provide services to the Group, including the Company’s directors. The administrator, which may be the Board or its authorized designee, has full power and authority to administer, construe and interpret the 2008 Plan. Under the terms of the 2008 Plan, options intended to qualify as incentive shares options must have an exercise price at least equal to the fair market value as of the date of grant, but all other share options can be granted with an exercise price less than the fair market value.

          On August 18, 2008, the Board approved the grant of 40,000 options, 260,000 options and 3,597,000 non-qualified stock options to certain directors, consultants and employees of the Group, respectively.

F-49

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

          Options granted to employees and consultants have a contractual life of five years, an exercise price of $7.70 and a vesting period of three years. Options granted to directors have a contractual life of five years, an exercise price of $7.70 and a vesting period of one year. The vesting of the unvested options granted to a director will be accelerated upon the director’s resignation from the Board. On January 20, 2009, the Board approved another grant of 35,000 non-qualified stock options to certain employees of the Group. These options have a contractual life of five years, an exercise price of $7.70 and a vesting period of three years. The exercise prices of options granted to employees, directors and consultants are denominated in US$. On March 4, 2009, the Board passed a resolution to modify the 2008 Plan for it to be effective without approval by the shareholders of the Company. In accordance with ASC 718-10, the grant date for the share-based awards issued on August 18, 2008 and January 20, 2009 was March 4, 2009.

          On December 3, 2009, the Board approved the grant of 7,000,000 share options to the directors, officer, employees and a consultant of the Group at an exercise price equal to the price at which the ordinary shares underlying the ADS are sold in the initial public offering of the Company; provided that the options shall expire in the event that the Company does not consummate its initial public offering within six months of the approval date. Since the exercise price was not known until IPO was successfully completed on January 25, 2010, the accounting grant date for the share-based awards issued on December 3, 2009 was not established until January 25, 2010. Accordingly, no compensation expense related to the December 3, 2009 grant was recognized for the year ended December 31, 2009.

          The fair value of the options granted was estimated using a binomial option pricing model. The binomial model requires the input of highly subjective assumptions, including the expected stock price volatility, the expected price multiple at which the holder is likely to exercise stock options and the expected employee forfeiture rate. The Company uses historical data and future expectations to estimate forfeiture rate. For expected volatility, the Company has made reference to historical volatilities of several comparable companies. The risk-free rate for periods within the contractual life of the option is based on U.S. Treasury zero-coupon yield in effect at the grant date. The dividend yield is based on the expected pay-out ratio. Before the closing of the IPO on January 25, 2010, the Company determined the fair value of the ordinary shares at the measurement date with the assistance of an independent valuation firm using a generally accepted valuation methodology, which incorporates certain assumptions including the financial results and growth trends of the Group, to derive the total equity value of the Group. The valuation model allocated the equity value between the ordinary shares and the preferred shares and determined the fair value of ordinary shares based on the following assumptions: (i) preferred shares were treated as if they had converted into ordinary shares where conversion into ordinary shares would result in a higher economic value and (ii) preferred shares that have a value higher than their conversion price were assigned a value that took into consideration their liquidation value. The expected share option life was estimated based on the resulting output of the binomial option pricing model. The option awards are not transferable and the grantees have a limited amount of time subsequent to their termination of employment or service to exercise the options. These post-vesting restrictions are considered in the binomial option pricing model as a suboptimal exercise factor.

          On December 28, 2011, the Board approved an option exchange program. Pursuant to the option exchange program, 10,109,000 and 275,000 share options originally granted to employees and a non-employee consultant, respectively, were cancelled. Simultaneously, 407,706 and 9,250 share options at an exercise price of US$0.46 were granted to these employees and the non-employee consultant, respectively, in exchange for the cancelled options. The option exchange program was structured to provide the same total fair value to the original and the new share options on the day of exchange, as determined under the Black-Scholes valuation model. These new share options have a contractual life of five years and are exercisable immediately upon grant. Other non-employee consultants and directors did not participate in the option exchange program. The Company accounted for the exchange of the original award for a new award as a modification in accordance with ASC sub-topic 718-20-35. Share-based payments: Subsequent measurement of awards classified as equity, and measured the incremental compensation cost from the modification as the excess of the fair value of the modified award based on current circumstances over the fair value of the original option measured immediately before its terms are modified based on current circumstances. The incremental compensation cost was determined to be zero by the Company after considering the terms of fair value to fair value option exchange. The US$7,620 unrecognized compensation cost of the original options was fully recognized on December 28, 2011, the modification date, as the modified share options were immediately vested upon modification.

F-50

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

Options granted to directors

          The following table summarizes the share options granted to directors as of and for year ended December 31, 2011:

	Number of Options		Weighted- Average Exercise Price (US$)		Weighted- Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value (US$)
Outstanding at January 1, 2011		40,000		7.70		2.63		—
Granted		—		—		—		—
Exercised		—		—		—		—
Forfeited or cancelled		—		—		—		—
Outstanding at December 31, 2011		40,000		7.70		1.63		—
Vested and expected to vest at December 31, 2011		40,000		7.70		1.63		—
Exercisable at December 31, 2011		40,000		7.70		1.63		—

          The explicit service condition of the options granted to directors is considered nonsubstantive since the vesting of share-based payments accelerates in full upon a director’s resignation from the Board. As a result, share-based compensation cost of US$12 for the 40,000 options granted to directors was immediately recognized on the grant date of March 4, 2009.

          Two of the directors resigned from the Board and their 20,000 share options became exercisable immediately upon their resignation.

          The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the fair value of the Company’s shares as of December 31, 2011, for those awards that have an exercise price currently below the fair value of the Company’s shares. As of December 31, 2011, all of the options granted to directors have an exercise price above the fair value of the Company’s shares, resulting in an aggregate intrinsic value of US$nil.

          The weighted-average grant-date fair value of options granted to directors of the Group during the year ended December 31, 2009 was US$0.30.

          The grant-date fair value of the 40,000 options granted to directors during the year ended December 31, 2009 was estimated using the following assumptions:

Suboptimal exercise factor	1.5
Risk-free interest rate	3.67	%
Expected volatility rate	59	%
Expected dividend yield	0	%
Expected share option life	4.46 years
Estimated forfeiture rate	0	%
Fair value of ordinary share	US$2.08

F-51

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

Options granted to consultants

          The following table summarizes the share options granted to consultants as of and for the year ended December 31, 2011:

	Number of Options			Weighted- Average Exercise Price (US$)		Weighted- Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value (US$)
Outstanding at January 1, 2011		345,000			7.08		2.92		—
Granted		9,250			0.46		5.00		—
Exercised		—			—		—		—
Forfeited or cancelled		(295,000	)		—		—		—
Outstanding at December 31, 2011		59,250			6.57		2.16		—
Vested and expected to vest at December 31, 2011		59,250			6.57		2.16		—
Exercisable at December 31, 2011		59,250			6.57		2.16		—

          As of December 31, 2011, all of the options granted to consultants have an exercise price above the fair value of the Company’s shares, resulting in an aggregate intrinsic value of US$nil.

          The weighted-average fair value of options granted to consultants of the Group during the year ended December 31, 2010 was US$2.03 and US$0.28 at January 25, 2010 and December 31, 2010, respectively. During the year ended December 31, 2011, the total fair value of options vested based on the year-end fair value was US$2.

          One of the consultants exchanged his 275,000 share options for 9,250 new share options on December 28, 2011 as more fully described above. The weighted average fair value of the new options granted was US$0.22 at December 28, 2011.

          As of December 31, 2011, all share-based compensation costs related to options granted to consultants have been recognized. To the extent the actual forfeiture rate is different from the original estimate or the assumptions used in estimating the fair value of options are changed, actual share-based compensation related to these awards granted to consultants may be different from the expectation.

          The fair value for the options granted to consultants during the years ended December 31, 2010 and 2011 was estimated using the binomial option pricing model with the following assumptions:

	December 31,
	2010			2011
Suboptimal exercise factor		1.5			3
Risk-free interest rate		0.87-1.48	%		0.85	%
Expected volatility rate		40.09	%		71.87	%
Expected dividend yield		0	%		0	%
Expected share option life		2.63-3.93 years			5 years
Estimated forfeiture rate		0	%		0	%
Fair value of ordinary share		US$2.46			US$0.38

F-52

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

Options granted to employees

          The following table summarizes the share options granted to employees as of and for the year ended December 31, 2011:

	Number of Options			Weighted- Average Exercise Price (US$)		Weighted- Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value (US$)
Outstanding at January 1, 2011		10,214,000			6.54		3.17		—
Granted		407,706			0.46		5.00		—
Exercised		—			—		—
Forfeited or cancelled		(10, 214,000	)		—		—		—
Outstanding at December 31, 2011		407,706			0.46		5.00		—
Vested and expected to vest at December 31, 2011		407,706			0.46		5.00		—
Exercisable at December 31, 2011		407,706			0.46		5.00		—

          As of December 31, 2011, all of the options granted to employees have an exercise price above the fair value of the Company’s shares, resulting in an aggregate intrinsic value of US$nil.

          The weighted-average grant-date fair value of options granted to employees of the Group during the year ended December 31, 2010 was US$1.44. During the year ended December 31, 2011, the total fair value of options vested based on the grant date fair value was US$90.

          Three of the employees terminated their employment relationship with the Company and their 105,000 share options were forfeited immediately upon termination in 2011. All of the employees exchanged their 10,109,000 share options for 407,706 new share options on December 28, 2011 as more fully described above. The weighted average fair value of the new options granted was US$0.22 at December 28, 2011.

          As of December 31, 2011, all share-based compensation costs related to options granted to employees have been recognized. To the extent the actual forfeiture rate is different from the original estimation, actual share-based compensation related to these awards may be different from the expectation.

          The grant-date fair value of the options granted to employees during the years ended December 31, 2010 and 2011 was estimated using the binomial option pricing model and the Black-Scholes valuation model, respectively, with the following assumptions:

	2010			2011
Suboptimal exercise factor		1.5			—
Risk-free interest rate		3.07	%		0.85	%
Expected volatility rate		58	%		71.87	%
Expected dividend yield		0	%		0	%
Expected share option life		4.86 years			5 years
Estimated forfeiture rate
Founders		0	%		—
Senior management		8.9	%		—
Employees		4.3	%		—
Fair value of ordinary shares		US $4.63			US$0.39

          Total compensation cost recognized for share options granted to directors, consultants and employees for the years ended December 31, 2009, 2010 and 2011:

	For the Years Ended December 31,
	2009		2010		2011
	US$		US$		US$
Cost of revenues		—		—		—
General and administrative expenses		571		3,615		10,479
		571		3,615		10,479

F-53

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

26. RELATED PARTY TRANSACTIONS

          The principal related parties with which the Group had transactions during the years presented are as follows:

Name of related parties	Relationship with the Group
China Hydro LLC	A shareholder of the Company
Kuhns Brothers, Inc.	A company owned by the CEO
China Carbon Investment Consulting, Ltd.	A company controlled by the CEO
China Silicon Zhuo-Xin Investment Consulting, Ltd.	A company controlled by the CEO
Sanming City Chenyang Hydropower Co., Ltd.	Noncontrolling interest in Wangkeng before January 14, 2011
Henan Lantian Group Co., Ltd.	Noncontrolling interest in Wuyue
Nanping City Xingshui Co., Ltd.	Noncontrolling interest in Jinlong
Xiamen Youen Hydropower Development Co., Ltd.	Noncontrolling interest in Jintang and Jinwei

(a) The Company had the following related party transactions during the years presented:

	For the Years Ended December 31,
	2009		2010		2011
	US$		US$		US$
Expense paid on behalf by related parties:
Kuhns Brothers, Inc.		75		98		90
		75		98		90

          During the years ended December 31, 2009, 2010 and 2011, Kuhns Brothers, Inc. paid US$75, $98 and $90 of miscellaneous expenses on behalf of the Company, respectively. The amounts were fully repaid by the Company as of December 31, 2011.

	For the Years Ended December 31,
	2009		2010		2011
	US$		US$		US$
Rental for office space provided by:
Kuhns Brothers, Inc.		288		288		288
		288		288		288
Fees for financial advisory services provided by:
Kuhns Brothers, Inc.		200		—		—
		200		—		—

          During the years ended December 31, 2009, 2010 and 2011, the Company rented office space from the Kuhns Brothers, Inc. and incurred rental expenses of US$288, US$288 and US$288, respectively.

          During the year ended December 31, 2009, the Company paid US$200 to Kuhns Brothers, Inc. as consideration for its financial advisory services in connection with Series C convertible redeemable preferred shares offering.

	For the Years Ended December 31,
	2009		2010		2011
	US$		US$		US$
Loans from related parties:
Sanming City Chenyang Hydropower Co., Ltd.		—		2,247		—
Xiamen Youen Hydropower Development Co., Ltd.		—		—		1,263
		—		2,247		1,263
Prepayment to related parties for acquisition of noncontrolling interest:
Sanming City Chenyang Hydropower Co., Ltd.		—		4,643		—
Prepayments to related parties for hydroelectric project construction:
Henan Lantian Group Co., Ltd.		—		1,251		—

F-54

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

          During the year ended December 31, 2010, the Company obtained short-term borrowings amounted to US$2,247 from Sanming City Chenyang Hydropower Co., Ltd. The short-term loans are unsecured, interest-free and repayable on demand. The amounts were fully repaid as of December 31, 2011. During the year ended December 31, 2011, the Company obtained short-term borrowings amounted to US$1,263 from Xiamen Youen Hydropower Development Co., Ltd. The short-term loans are unsecured, interest-free and repayable on demand.

          During the year ended December 31, 2010, Fujian Huabang made a prepayment of US$4,643 to Sanming City Chenyang Hydropower Co., Ltd. for the acquisition of the remaining 10% noncontrolling interest in Wangkeng. The acquisition was completed in January 2011.

          During the year ended December 31, 2010, the Company made a payment of US$1,251 on behalf of Henan Lantian Group Co., Ltd., the noncontrolling shareholder of Wuyue, for the construction of Wuyue’s hydroelectric project.

(b) The Company had the following related party balances as of December 31, 2010 and 2011:

	December 31,
	2010		2011
	US$		US$
Amounts due from related parties:
Sanming City Chenyang Hydropower Co., Ltd.		4,680		—
Henan Lantian Group Co., Ltd.		1,270		1,334
		5,950		1,334
Less: Allowance for doubtful accounts		—		(1,334	)
		5,950		—
Amounts due to related parties:
Sanming City Chenyang Hydropower Co., Ltd.		2,514		—
Kuhns Brothers, Inc.		4		4
Nanping City Xingshui Co., Ltd.		1,419		1,490
Xiamen Youen Hydropower Development Co., Ltd.		8,929		10,680
		12,866		12,174

          Amounts due from related parties as of December 31, 2011 mainly represents payments made on behalf of Henan Lantian Group Co., Ltd. by the Company for the construction of Wuyue’s hydroelectric project in 2010. During the year ended December 31, 2011, the Company decided to abandon the construction of Wuyue’s hydroelectric project. As a result the Company made a full bad debt provision of US$1,344.

          All balances with related parties as of December 31, 2011 are unsecured, interest-free and repayable on demand.

27. STATUTORY RESERVES

          The Group’s ability to pay dividends is primarily dependent on the Group receiving distributions from its subsidiaries. Relevant PRC statutory laws and regulations permit payments of dividends by the Group’s PRC subsidiaries only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. The results of operations reflected in the financial statements prepared in accordance with US GAAP differ from those reflected in the statutory financial statements of the Group’s subsidiaries.

F-55

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

          In accordance with the Law of the People’s Republic of China on Foreign Invested Enterprises (“FIE”) and its articles of association, a FIE established in the PRC is required to provide certain statutory reserves, namely general reserve fund, the enterprise expansion fund and staff welfare and bonus fund which are appropriated from net profit as reported in the enterprise’s PRC statutory accounts. A wholly-owned foreign invested enterprise (“WOFE”) is required to allocate at least 10% of its annual after-tax profit to the general reserve until such reserve has reached 50% of its respective registered capital based on the enterprise’s PRC statutory accounts. A non-wholly-owned foreign invested enterprise is permitted to provide all the above allocation of annual after-tax profit at the discretion of its board of directors, except for the general reserve fund which has the same requirement as a WOFE. Appropriations to the enterprise expansion fund and staff welfare and bonus fund are at the discretion of the board of directors for all foreign invested enterprises. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends. All of the subsidiaries of the Company except Wangkeng, Shapulong, Wuyue, Ruiyang, Husahe, Jinlong, Jintang, Jinwei and Dazhaihe were acquired or established as WOFEs, and therefore are subject to the above mandated restrictions on distributable profits. Wangkeng was acquired as a non-wholly-owned foreign invested equity; Shapulong and Wuyue are equity joint ventures established pursuant to the Law of China on Sino-Foreign Equity Joint Ventures, and Ruiyang, Husahe, Jinlong, Jintang, Jinwei and Dazhaihe are domestic companies established pursuant to the Company Law of China, and therefore are only subject to the 10% general reserve fund requirement.

          As a result of the PRC laws, rules and regulations that require annual appropriations of 10% of after-tax income to be set aside prior to payment of dividends as general reserve fund, the Group’s PRC subsidiaries are restricted in their ability to transfer a portion of their net assets in the form of dividend payments, loans or advances. The amounts restricted include paid-up capital and statutory reserves as determined pursuant to PRC generally accepted accounting principles, totaling US$466,792 and US$490,621 as of December 31, 2010 and 2011, respectively. Profit appropriations of US$1,255 and US$333 were made for the years ended December 31, 2010 and 2011, respectively.

28. CONCENTRATION OF RISKS

Concentration of credit risk

          Financial instruments that potentially subject the Group to significant concentration of credit risk consist primarily of cash and cash equivalents and accounts receivable. As of December 31, 2010 and 2011, substantially all of the Group’s cash and cash equivalents were managed by financial institutions located in the United States and the PRC which management believes are of high credit quality.

          Accounts receivable are typically unsecured and derived from revenue earned from customers in the PRC. As a percentage of total accounts receivable, the top five customers accounted for 98% and 85% as of December 31, 2010 and 2011, respectively.

          Due to the Group’s dependence on a limited number of customers, any negative events or deterioration in financial strength with the Group’s customers or deterioration of relationship with the Group’s customers, may cause material loss to the Group and have a material adverse effect on the Group’s financial condition and results of operations. The major customers and the portion of revenue from these customers for the years ended December 31, 2009, 2010 and 2011 are listed below:

		For the Years Ended December 31,
Segment		2009			2010			2011
Yunnan Nujiang Electric Power Co., Ltd.	Yunnan Province		—			1	%		7	%
Yunnan Dehong Electric Power Co., Ltd.	Yunnan Province		8	%		9	%		11	%
Yunnan Honghe Electric Power Co., Ltd.	Yunnan Province		—			—			1	%
Yunnan Grid Company, Ltd.	Yunnan Province		—			3	%		4	%
Sichuan Cangxi Electric Power Co., Ltd.	Sichuan Province		3	%		1	%		1	%
Lishui Electric Power Bureau	Zhejiang Province		50	%		49	%		43	%
Fujian Electric Power Co., Ltd.	Fujian Province		28	%		24	%		16	%
Pingnan Power Supply Company	Fujian Province		11	%		13	%		8	%
Shaowu Electric Power Bureau	Fujian Province		—			—			7	%
Nanping Electric Power Bureau	Fujian Province		—			—			2	%
			100	%		100	%		100	%

F-56

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

Currency convertibility risk

          Substantially all of the Group’s businesses are transacted in RMB, which is not freely convertible into foreign currencies. On January 1, 1994, the PRC government abolished the dual rate system and introduced a single rate of exchange as quoted daily by the People’s Bank of China. However, the unification of the exchange rates does not imply the convertibility of RMB into US$ or other foreign currencies. Under Mainland China’s Foreign Exchange Currency Regulation and Administration, the Group is permitted to exchange RMB for foreign currencies through banks authorized to conduct foreign exchange business. All foreign exchange transactions continue to take place either through the People’s Bank of China or other banks authorized to buy and sell foreign currencies at the exchange rates quoted by the People’s Bank of China. Approval of foreign currency payments by the People’s Bank of China or other institutions requires submitting a payment application form together with invoices and signed contracts.

Foreign currency exchange rate risk

          On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the RMB to US$. Under the new policy, the RMB is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. This change in policy has resulted in an approximately 0.1%, 3.0% and 4.9% appreciation of the RMB against the US$ in 2009, 2010 and 2011, respectively. On June 19, 2010, the People’s Bank of China announced the end of the RMB’s de facto peg to US$, a policy which was instituted in late 2008 in the face of the global financial crisis, to further reform the RMB exchange rate regime and to enhance the RMB exchange rate flexibility. The exchange rate floating bands will remain the same as previously announced in the inter-bank foreign exchange market. While the international reaction to the RMB revaluation has generally been positive, there remains significant international pressure on the PRC government to adopt an even more flexible currency policy, which could result in a further and more significant volatility of the RMB against the US$.

          Any significant revaluation of RMB may materially and adversely affect the cash flows, revenues, earnings and financial position in US$.

Current vulnerability due to certain other concentrations

          The Group’s operations may be adversely affected by significant political, economic and social uncertainties in the PRC. Although the PRC government has been pursuing economic reform policies for almost 30 years, no assurance can be given that the PRC Government will continue to pursue such policies or that such policies may not be significantly altered, especially in the event of a change in leadership, social or political disruption or unforeseen circumstances affecting the PRC’s political, economic and social conditions. There is also no guarantee that the PRC government’s pursuit of economic reforms will be consistent or effective.

29. SUBSEQUENT EVENTS

          On December 3, 2011, the Company entered into an equity purchase and sale agreement with a third-party to sell Pingnan County Yuanping Hydroelectric Co., Ltd., which owns and operates the Yuanping hydroelectric power project, a 16 megawatt (“MW”) project located in the Fujian Province, for cash consideration of US$11,276 (RMB71,050). The sale transaction was completed on March 2, 2012.

F-57

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

30. CONDENSED FINANCIAL INFORMATION OF THE COMPANY

          The following is the condensed financial information of the Company on a non-consolidated basis:

Balance sheets

	December 31,
	2010			2011
	US$			US$
ASSETS
Current assets
Cash and cash equivalents		8,088			2,884
Prepayments and other current assets		1,541			135
Total current assets		9,629			3,019
Non-current assets
Property, plant and equipment, net		11			7
Investment in subsidiaries		417,166			416,542
Other non-current assets		157			139
Total non-current assets		417,334			416,688
TOTAL ASSETS		426,963			419,707
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Amounts due to subsidiaries		15,940			13,919
Accrued expense and other current liabilities		2,575			2,821
Deferred tax liabilities		—			537
Warrant liabilities		—			440
Total current liabilities		18,515			17,717
Non-current liabilities
Other non-current liabilities		—			129
		—			129
Total liabilities		18,515			17,846
Shareholders’ equity
Ordinary shares (par value US$0.001 per share, 400,000,000 shares authorized as of December 31, 2010 and 2011; 153,295,516 and 161,989,097 shares issued and outstanding as of December 31, 2010 and 2011)		153			162
Additional paid-in capital		498,213			516,967
Accumulated other comprehensive income		22,922			42,968
Accumulated deficit		(112,840	)		(158,236	)
Total shareholders’ equity		408,448			401,861
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		426,963			419,707

F-58

CHINA HYDROELECTRIC CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)

Statements of operations

	For the Years Ended December 31,
	2009			2010			2011
	US$			US$			US$
Revenues		—			—			—
Cost of revenues		—			—			—
Gross profit		—			—			—
Operating expenses:
General and administrative expenses		(4,785	)		(12,016	)		(18,247	)
Total operating expenses		(4,785	)		(12,016	)		(18,247	)
Operating loss		(4,785	)		(12,016	)		(18,247	)
Equity in (losses) profits of subsidiaries		(747	)		14,814			(27,402	)
Share of losses in an equity investee		(70	)		—			—
Interest income		319			555			66
Interest expense		(419	)		(19	)		(23	)
Change in fair value of derivatives and warrant liabilities		(13,793	)		365			951
Exchange loss		(6	)		(403	)		(580	)
Other income, net		105			446			375
(Loss) income before income tax expense		(19,396	)		3,742			(44,860	)
Income tax expense		—			—			(536	)
Net (loss) income		(19,396	)		3,742			(45,396	)
Statements of cash flows
	For the Years Ended December 31,
	2009			2010			2011
	US$			US$			US$
Cash flows used in operating activities		(3,289	)		(10,157	)		(8,740	)
Cash flows used in investing activities		(21,643	)		(86,071	)		(6,500	)
Cash flows provided by financing activities		10,787			85,988			10,036
Net decrease in cash and cash equivalents		(14,145	)		(10,240	)		(5,204	)
Cash and cash equivalents at the beginning of year		32,473			18,328			8,088
Cash and cash equivalents at the end of year		18,328			8,088			2,884

(a) Basis of presentation

          In the Company-only financial statements, the Company’s investment in subsidiaries is stated at cost plus equity in undistributed earnings of subsidiaries since the date of acquisition. Company-only financial statements should be read in conjunction with the Company’s consolidated financial statements.

          The Company records its investment in its subsidiaries under the equity method of accounting as prescribed in ASC 323-10. Such investment is presented as “Investment in subsidiaries” in the balance sheet and share of the subsidiaries’ losses or profits is presented as “Equity in (losses) profits of subsidiaries” in the statements of operations.

          The subsidiaries did not pay any dividend to the Company for the years presented.

          Certain information and footnote disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted by reference to the disclosures in the consolidated financial statements.

(b) Commitments

          The Company does not have any significant commitments or long-term obligations as of any of the years presented, except for those disclosed in the consolidated financial statements (Note 22).

F-59