JointOperation Agreement ofthe Large Scale Group Furnaces Low Temperature Smoke-Steam Residual HeatComprehensive Usage Project (Power Station Project)

1.

Party A is located in Chessboard Well Industrial Park, Etuoke Banner, City of Erdos, Inner Mongolia.  It is the largest ferroalloy production enterprise in P.R.China. Party A is planning to remould its existing submerged arc furnaces to recovery and reuse waste heat.

2.

China Recycling Energy Corporation is a listed company with its common stock being traded on the NASD’s Over-the-Counter Bulletin Board (ticker symbol “CREG”), with current capitalization of US$200 million.  Party B is a Chinese subsidiary controlled by CREG and is in charge of the investment and operation of CREG’s projects in China. Party B’s registered capital is RMB80 million. Its major business is to invest, construct, and operate energy recycling projects and new energy projects in China.  Party B has successfully completed several projects in the areas of TRT and residual heat power generation.

3.

Both Parties hereby entered this agreement to jointly construct Party A’s Large Scale Group Furnaces Low Temperature Smoke-Steam Residual Heat Comprehensive Usage Project (“Power Station Project”) and steam recovery project.

1.

The name of the project is Inner Mongolia Erdos Metallurgy Co., Ltd. Large Scale Group Furnaces Low Temperature Smoke-Steam Residual Heat Comprehensive Usage Power Generation Project (“Power Station Project”) and steam recovery station project (collectively referred to herein as the “Projects” or “Stations”).

2.

The Projects are located in Chessboard Well Industrial Park, Etuoke Banner, City of Erdos, Inner Mongolia.

1.

Party A and Party B shall cooperate in all respects and during the entire course of constructing the Projects and operating the Stations.

2.

The two Parties jointly invest and establish a limited liability company (referred to herein as the “Joint Company”).  A board of directors shall be formed for the Joint Company, with the first chairman appointed by Party A.  The legal representative of the Joint Company shall be Party B and the President of the Joint Company shall be appointed by Party B.  The hiring of Vice Presidents, CFO and other senior members of the management shall be nominated by the President and approved by the board of directors.  The hiring of other members of management shall be approved by the President.  Detail matters are specified in the Joint Company’s Article of Incorporation.

3.

The registered capital of the Joint Company is tentatively determined to be RMB18 million, with the initial investment installment to be injected by Party B.

4.

Prior to the recovery of all investments: Party A shall be entitled to 20% ownership interest in the Joint Company by providing resources such as residual heat, land, and water, etc. and 10% of the capital investment; Party B shall be  entitled to 80% ownership interest in the Joint Company by providing 90% of the capital investment.

5.

Subsequent to the recovery of all investments: Party A shall be entitled to 40% ownership interest and Party B shall be entitled to 60% ownership interest in the Joint Company.

6.

During the later course of joint operation, if Party A requests to raise its investment proportion, it has to be approved by written consents from both Parties.

1.

To recover residual heat generated by Party A’s existing 54 submerged arc furnaces (26 ferrosilicon furnaces of 25,000 KVA each, 22 ferrosilicon furnaces of 12,500 KVA each, and 6 calcium carbide furnaces of 25,000 KVA each, with total capacity of 1,075,000 KVA) and to construct residual heat power generation stations or steam recovery stations. The capacity upon completion is expected to be 70 MW electricity and/or 30tons/hour of steam.

2.

The technical plan for the Projects is detailed in another document which is an appendix to this agreement (“Technical Appendix”).  This technical plan shall list Party A’s existing 54 submerged arc furnaces, including models, capacities and locations.

3.

To save energy, reduce emission of carbon dioxide, protect atmospheric environment, lower production costs, and enable both Parties to achieve good economic benefits from construction of the Projects and operation of the Stations. It is targeted to reduce by 10% the quantity of electricity to be purchased by Party A from external sources and to increase the production of steam and therefore reduce the investment required for constructing coal-fired boilers.

1.

The joint operation period for the two Parties shall be 20 years, commencing from the date when the Joint Company obtained its business license.  The joint operation period shall include construction period for the Projects. It shall start from year 2009 and be terminated in year 2029.

2.

The first Station shall be completed and put in operation within 10 months after this agreement takes effective. The construction of all Projects is expected to be completed by the end of December of 2011.

3.

Ninety days prior to expiration of the joint operation period, the two Parties shall discuss and negotiate for settlement and transfer.

1.

The Joint Company shall be the owner of the Projects and shall be in charge of project design, construction and operation.

2.

The Joint Company shall select design institute/company with established history of success in designing for residual heat power generation projects to conduct preliminary design and construction design.

3.

The Joint Company shall be responsible for equipment selection and purchase for the Projects.

4.

If Party B is to conduct the design work and perform as the general contractor for the Projects, then Party B shall be responsible for achieving the technical specifications provided in the Technical Appendix.

5.

If a third party is to conduct the design work and perform as the general contractor for the Projects, then this third party shall be responsible for achieving the technical specifications provided in the Technical Appendix.

1)

The Project shall outsource a special design firm for preparation of estimate on investment budget. The estimate shall be examined by experts employed by part A and B. The investment for the project shall be within the range of the budget.

2)

Either party shall contribute its share of capitals into the JV’s account. The JV shall provide with certificates of shares and receipt of the funds to the both parties and certify the JV’s registered paid-in capital after the funds are received from both parties.

3)

Party A shall provide temporary office space for the project;

4)

All the upfront expenses and fees, such as modification on old equipment for improvement of energy efficiency, feasibility research for the project, application for CDM, registration of JV, and other changes under this project, as well as application for government incentive policy and subsidies, shall be expenses in the JV as “Construction in Progress”.

1)

All the electricity to be generated in the project, deducted in the consumption of the JV, shall be sold to Party. If possible in future, some can be sold to the state grid.

1)

The tariff shall base on the current local electricity price Party A can get for its furnaces.

2)

The project shall install separate meter for gauging electricity or gas, as its own basis for calculating power volume.

3)

Gas price shall base on local current price standard;

4)

Tariff rate shall be subject to change with a same range of change in the local electricity price Party A can get for its furnace, if the government makes adjustments in local electricity prices.

1)

All the electricity revenges, deducted all the costs, expense, taxes, reserves and fees to be incurred by applicable laws, regulation and policies, shall be recognized as incomes of the JV energy-saving business.

2)

Both Parties shall share the incomes in the name of energy-saving service fees to cover their capital expenditure in the project.

3)

Upon the project starting in operation, it shall be based on the prescript in Article 2 (4) to distribute the income between the two parties, which is 20% for Party A and 80% for Party B prior to recovering all the investment and subsequent to the point of revering, 40% for Party A and 60% for Party B

4)

All the CDM revenue, incentives, rewards or subsidies from the state or local governments, shall be distributed equally (50%/50%) between two parties. See the Annex for financial arrangement for detail implementation.

1)

Party A shall pay the JV for energy-saving service fees in the way of banking transfer.

2)

The 25th of each month shall be settlement date and the 15th of the following month shall be due date for monthly payment.

3)

Net Income of the JV shall be distributed once a year;

4)

It is stipulated in Annex for Financial Arrangement in details for amount to be paid by Party A to JV, payment tem, settlement detail and related issues.

1)

Both Parties shall be responsible for acceptance of the project, including acceptance on arrival of equipments on –site, acceptance upon the completion of the project ordered on-site.

2)

The JV shall coordinate the contractors to prepare for acceptance of the project to be completed. It shall be acceptable if the systems of the project have been steadily and stably working for 168 hours. The chief technicians from both parties shall sign and seal on the acceptance report. On the report it shall record all the data, status and instant outcomes of all the instruments and meters.

3)

After the acceptance reports is agreed by related parties, the date of acceptance shall be the starting date for charging Party A for electricity to be generated.

4)

If the acceptance needs to be regulated by government, the JV shall file written application for acceptance of the project within 3 days after the acceptance procedure is made on-site. The date of receiving the acceptance notice from government shall be regarded as the starting date of operation.

1)

All the assets under the project shall belong to the JV.

2)

During building the project, the assets, which are used for the projects, but separately and originally owned by either party, shall still belong to either party.

1)

All the maintenances and repairs on daily basis shall be expenses in Operating Expenses;

2)

It shall be agreed by both parties and have resolution from the Board for any major modification or overhauls on equipments of the project. It shall apply depreciation expense to cover all related costs and expenses.

Party A seal:

legal representative

or authorized representative

Party B seal

legal representative

or authorized representative