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2001 Annual Report

COMPANY MISSION

Our mission is to grow strategically and profitably by converting polluting
wastes into valuable renewable energy sources that will help move America into a
healthy and energy independent 21st century.

Environmental Power Corporation (POWR), a leader in the renewable energy field,
was established in 1982 and has a track record of success in development of
hydroelectric plants, municipal waste projects, and waste-coal fired generating
facilities. Historically, POWR sold its projects, either during development or
at completion. Currently, we own a 22-year leasehold interest in the 83 MW waste
coal fired Scrubgrass Generating Facility in Pennsylvania. Scrubgrass, the
recipient of numerous environmental awards, is expected to save the Commonwealth
of Pennsylvania over $20 million in clean-up costs by burning thousands of tons
of waste coal. Rather than remaining a mega-source of acid mine drainage, this
waste coal now supplies electricity to approximately 83,000 homes.

With a vision for the future and in keeping with our mission, POWR recently
acquired Microgy Cogeneration Systems, Inc. This acquisition brought POWR the
exclusive North American license for an anaerobic digestion technology which is
a leader in efficient production of renewable energy generated by methane
extracted from animal wastes.

This technology addresses two critical needs - the need for agricultural
pollution control products to reduce groundwater contamination and the need to
create renewable energy sources which improve air quality. POWR's goal is to
build hundreds and perhaps thousands of these facilities at dairy and swine
farms throughout the United States and internationally in our territory in the
coming years.

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2001 Annual Report

THE BUSINESS TO DATE:

Shortly after our founding in 1982, we became an independent developer of
electrical generating facilities powered by non-commodity fuels and renewable
energy sources. Our power generating facilities have always used alternative
fuels, most of which are wastes and therefore are not subject to the same cost
fluctuations as traditional fuels. Historically, we sold our projects, either in
development or at completion. However, POWR has retained, as lessee, the
operating interest in the 83 MW, waste coal fired Scrubgrass facility in
Kennerdell, PA. Scrubgrass is the two time winner of Pennsylvania's Governor
Award for Environmental Excellence as well as three other environmental awards.
It is expected to save the state over $20 million in clean-up costs by consuming
annually over 600,000 tons of water polluting wastes while creating electricity
for 83,000 homes.

POWR'S RECORD OF ACCOMPLISHMENT:

*    Pioneered tax-exempt credit enhanced, variable rate financing for
     independent power projects.

*    First independent power developer to do non-credit enhanced tax exempt
     project debt.

*    Signed some of the earliest Power Sales Contracts under the Federal Public
     Utility Regulatory Act of 1978 - writing the first contract in Vermont with
     the Vermont Power Xchange and among the earliest contracts in Pennsylvania,
     Maine and Utah.

*    Recognition for environmental excellence:

     *    Three Rivers Environmental Award Finalist, by the Pennsylvania
          Environmental Council (1996)

     *    Governor's Award for Environmental Excellence, State of Pennsylvania
          (1998)

     *    Joseph P. Kearney Environmental Award for Excellence and Stewardship,
          PG&E National Energy Group (1999)

     *    Governor's Award for Environmental Excellence in Pollution Prevention,
          State of Pennsylvania (2000)

     *    Three Rivers Environmental Award for Environmental Stewardship (2000)

THE OPPORTUNITY:

The world has focused sharply on the environment over the last decade. Concerns
over water and air pollution have created market needs, and POWR is prepared to
address them. We have an opportunity to address the needs for pollution
mitigation in both the agricultural markets and energy markets. In the former,
large animal feeding operations will need pollution control equipment and
services to address water pollution concerns. In the latter, electric utilities
need thousands of megawatts of renewable energy to meet consumer demand and
concerns over air pollution and the depletion of natural resources.

THE BUSINESS TOMORROW:

The Company intends to build, sell and operate facilities that will be based
upon anaerobic digester technology licensed by Microgy, our subsidiary. We have
the special capability of providing control of both air and water pollution
which in the past has had a cost attached to it. The advanced benefits of our
technology allows our facilities to generate revenues from power generation and
to change farm pollution control from cost-based to profit making. We will
provide our customers, who are farms and farm groups, with a profit making
solution to their pollution problems.

We will deliver a packaged "product" that includes a completely constructed
facility, completed power contract with financing options available and
contracts for management, operations and maintenance services. Our complete
solution turns the cost of controlling pollution into an economic asset -
literally converting manure into money

                                                 Environmental Power Corporation

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THE MARKETS: POWR plans to serve 4 markets:
Agricultural Markets - Our facilities will be sold to and installed at large
dairy and swine farms and produce renewable electricity for sale to the grid.

Energy Markets - Generation of revenues from the sale of electrical energy in
the form of firm, peak power can create a profit center rather than a cost for
the farmer.

Renewable Energy Markets - With renewable power growing at 40% annually, we
believe this special niche in the vast electricity marketplace can be served by
POWR with the advantage of premier rates for its electricity generation.

Pollution Offset Trading Markets - These young and burgeoning markets have grown
from private initiatives and EPA sponsored pollution allowance certification
programs to become significant factors today and exciting prospective
marketplaces for tomorrow. POWR's facilities are expected to produce tradeable
reductions of greenhouse gases as well as water contaminants.

THE TECHNOLOGY:

Anaerobic digestion is a biochemical process in which microbes break down
organic material into inorganic compounds in an environment void of molecular
oxygen. Methane is one of the products of decomposition and makes up 60% to 70%
of the resulting biogas. The biogas can be used to generate power and, as a
cogeneration facility, provide heating, and refrigeration. Valuable bio-solid
byproducts such as fertilizers, animal bedding and compost can also be produced.
Our facilities will consist of one or more digester tanks that are large welded
steel tanks. The internal environment of the digester is monitored and
controlled to efficiently produce methane rich biogas. The methane-rich biogas
is stored in a dual membrane, inflatable storage bladder and each digester site
is designed with storage capability to operate around the clock or during peak
power demand periods, as the market dictates.

TECHNOLOGY BENEFITS

*    High Efficiency Anaerobic Digestion Technology - According to experts our
     licensed technology produces nearly 2 times more biogas on average than
     similar European digester systems and up to 5 times more than other
     anaerobic digestion technologies.

*    Renewable Energy Shaped to the Electricity Markets - We believe that our
     ability to commit delivery of reliable firm, peak, utility grade power from
     a renewable resource will distinguish POWR from other forms of renewable
     energy.

*    Proven Technology - Nearly 15 years of successful performance with more
     than 20 operating systems in place in Europe.

Environmental Power Corporation

