Environmental Power Corporation Reports Third Quarter 2006 Financial Results

November 18 2006

Environmental Power Corporation (Amex: EPG) today announced results for the third quarter ended September 30, 2006. The company will issue a separate business update press release prior to the management conference call being held at 8:30 am Eastern Time tomorrow, November 15, 2006.

Nine Months Ended September 30, 2006

Total revenues for the nine months ended September 30, 2006 decreased by $4.3 million, or 9%, to $41.6 million, as compared to $45.9 million for the same period in 2005.

Overall revenues at the Company's subsidiary Buzzard Power Corporation ("Buzzard") decreased by $2.5 million to $39.8 million as a result of a decrease in accrued power generation revenues. Billed power generation revenues at Buzzard increased by $775,000 to $43.0 million in the nine months ended September 30, 2006 as a result of increased power rates, as compared to $42.2 million for the nine months ended September 30, 2005. Buzzard operated at 96.9% of capacity for this period, compared to 99% of capacity for the same period in 2005. Accrued power generation revenues decreased by $3.3 million, as a result of the FASB 13 accounting treatment of the Scrubgrass lease. This adjustment has no effect on pre-tax income because it is completely offset by a decrease in accrued lease expense.

The Company's subsidiary Microgy, Inc. ("Microgy") recognized $1.8 million of revenues relating to the construction and management of its first three projects, compared to $3.6 million of such revenues in the same period in 2005. This decrease in sales is a result of the strategic move from a focus on the sale of facilities to a model focused on the ownership of facilities, pursuant to which Microgy will construct and own facilities for its own account and generate revenues from the ongoing sale of the biogas or pipeline-grade gas produced.

Total costs and expenses decreased by $1.6 million to $49.5 million for the nine months ended September 30, 2006, as compared to $51.1 million for the same period in 2005.

Costs and expenses at Buzzard remained relatively flat at $40.6 million in 2006 as compared to $39.9 million in 2005. Operating expenses increased by $1.2 million, as a result of increased labor, fuel and transportation costs. This increase was offset by decreases in general and administrative expenses of $1 million.

Costs and expenses at Microgy remained flat at $2.3 million. Cost of goods sold decreased by $885,000, as Microgy shifted focus to the facility ownership model. This decrease was partially offset by increases in general and administrative expenses of $823,000.

All Other Segments reported a decrease in total costs and expenses of $598,000 to $2.6 million in 2006, from $3.2 million in 2005. Non-cash compensation decreased by $699,000 in 2006.

The Company reported a net loss for the first three quarters of 2006 of $7.8 million, or $0.81 per share, on 9.6 million weighted average common shares outstanding, as compared to net loss of $5.3 million, or $0.76 per share, on 7.1 million weighted average common shares outstanding for the same period in 2005.

Three Months Ended September 30, 2006

Total revenues for the three months ended September 30, 2006 decreased by $1.9 million, to $14.0 from $15.9 million for the same period in 2005.

Revenues at Buzzard decreased by $1.1 million to $13.4 million for the three months ended September 30, 2006, from $14.5 million for the same period in 2005. Billed power generation revenues remained flat at $14.5 million, due to a 4% increase in billed power rates that was offset by a decrease in operating capacity, 96.7% in 2006, as compared to 101% in 2005. Accrued power generation revenues decreased by $1.1 million, as a result of the FASB 13 accounting treatment of the Scrubgrass lease. This adjustment has no effect on pre-tax income because it is completely offset by a decrease in accrued lease expense.

Microgy recognized $595,000 of revenues relating to the construction and management of its first three projects, compared to $1.4 million in the same period in 2005. This decrease in sales is a result of the strategic move from a focus on the sale of facilities to a facility-ownership model.

Total costs and expenses decreased by $1.7 million to $17.4 million for the three months ended September 30, 2006, as compared to $19.1 million for the same period in 2005.

At Buzzard, costs and expenses remained flat at $14.0 million. Operating expenses and general and administrative decreased slightly by $354,000 and $287,000, respectively. These decreases were offset by increase in lease expenses of $803,000.

Costs and expenses at Microgy remained flat as well, $2.3 million for the three months ended September 30, 2006 and 2005. Cost of goods sold decreased by $885,000, as Microgy shifted focus to an ownership model as opposed to a sales model. This decrease was partially offset by increases in general and administrative expenses of $823,000, due primarily to salary expenses.

The Company reported a net loss for the quarter ending September 30, 2006 of $3.4 million, or $0.35 per share, on 9.6 million weighted average common shares outstanding, as compared to net loss of $3.3 million, or $0.44 per share, on 7.4 million weighted average common shares outstanding in the third quarter of 2005.

Subsequent Events

On November 9, 2006, our subsidiary, Microgy Holdings, LLC, completed a tax-exempt bond financing through a Texas governmental authority resulting in gross proceeds of $60 million. The net proceeds from this offering will be used to finance construction of the Huckabay Ridge facility, as well as three similar-sized facilities in Texas. On November 9, 2006, we also completed a private placement of preferred stock and warrants. The net proceeds from this $15 million offering will be used to finance our equity requirements under the bond financing with respect to the Texas projects, other development activities and general corporate purposes. The bond financing and the private placement are each described in greater detail in our Current Report on Form 8-K, dated November 9, 2006, as filed with the Securities and Exchange Commission on November 14, 2006.

ABOUT ENVIRONMENTAL POWER CORPORATION

Environmental Power Corporation is a developer, owner and operator of renewable energy production facilities. Its principal operating subsidiary, Microgy, Inc., holds an exclusive license in North America for the development and deployment of a proprietary anaerobic digestion technology for the extraction of methane gas from animal wastes for its use to generate energy. For more information visit the Company's web site at http://www.environmentalpower.com.

CAUTIONARY STATEMENT

The Private Securities Litigation Reform Act of 1995, referred to as the PSLRA, provides a "safe harbor" for forward-looking statements. Certain statements contained in this press release, such as statements concerning planned manure-to-energy systems, our sales pipeline, our backlog, our projected sales and financial performance, statements containing the words "may," "assumes," "forecasts," "positions," "predicts," "strategy," "will," "expects," "estimates," "anticipates," "believes," "projects," "intends," "plans," "budgets," "potential," "continue," "targets" "proposed," and variations thereof, and other statements contained in this press release regarding matters that are not historical facts are forward-looking statements as such term is defined in the PSLRA. Because such statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to: uncertainties involving development-stage companies; uncertainties regarding project financing, the lack of binding commitments and/or the need to negotiate and execute definitive agreements for the construction and financing of projects, the sale of project output, the supply of substrate and other requirements and for other matters; financing and cash flow requirements and uncertainties; inexperience with the development of multi-digester projects; risks relating to fluctuations in the price of commodity fuels like natural gas, and our inexperience with managing such risks; difficulties involved in developing and executing a business plan; difficulties and uncertainties regarding acquisitions; technological uncertainties; including those relating to competing products and technologies; risks relating to managing and integrating acquired businesses; unpredictable developments; including plant outages and repair requirements; the difficulty of estimating construction, development, repair and maintenance costs and timeframes; the uncertainties involved in estimating insurance and implied warranty recoveries, if any; the inability to predict the course or outcome of any negotiations with parties involved with our projects; uncertainties relating to general economic and industry conditions, and the amount and rate of growth in expenses; uncertainties relating to government and regulatory policies and the legal environment; uncertainties relating to the availability of tax credits, deductions, rebates and similar incentives; intellectual property issues; the competitive environment in which Environmental Power Corporation and its subsidiaries operate and other factors, including those described in our most recent Annual Report on Form 10-K or Quarterly Report on Form 10-Q, well as in other filings we make with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date that they are made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

CONTACT

Rich Kessel, President and CEO of Environmental Power Corporation

(603) 431-1780

rkessel@environmentalpower.com

Public Relations Contact:

John Abrashkin, Ricochet Public Relations

(212) 679-3300 x121

jabrashkin@ricochetpr.com

Investor Relations Contact:

John Baldissera, BPC Financial Marketing

1-800-368-1217