<PAGE>

                                                                   EXHIBIT 10.21


                            MASTER SOURCING AGREEMENT


         This MASTER SOURCING AGREEMENT (the "MSA") is entered into as of the
13th day of July, 2001, by and between General Electric Company, a New York
corporation acting through its GE Digital Energy business unit, having a
principal place of business at 4200 Wildwood Parkway, Atlanta, Georgia 30339 USA
("GE" or "Buyer") and ACTIVE POWER, INC ("Active Power" or "Seller"), a Delaware
corporation, having a principal place of business at 11525 Stonehollow Drive,
Suite 110, Austin, Texas 78758. (GE and ACTIVE POWER being referred to herein
individually as a "Party" and collectively the "Parties").

                                    RECITALS

         WHEREAS, GE and ACTIVE POWER and their respective affiliates are
engaged in the manufacture, production, assembly and sale of Power Conditioning
equipment and components and ancillary services (collectively "Equipment"); and

         WHEREAS, GE and ACTIVE POWER desire to expand their business
relationship and grow on terms satisfactory to both parties and they hereby
execute this MSA for purposes of confirming the issuance by GE to ACTIVE POWER
of the purchase orders (the "Purchase Orders") for the products defined in
Attachment A in accordance with the pricing schedule defined in Attachment B.

         NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein the Parties agree as follows:

         1.       Supply/Purchase of ACTIVE POWER Flywheel Energy Storage System
                  ("FESS") Designed Systems. The Parties hereby enter into this
                  FESS sourcing agreement, whereby ACTIVE POWER shall supply GE,
                  and GE shall purchase from ACTIVE POWER, Clean Source 2
                  Flywheel Energy Storage System on the following conditions:

                  (a)      That the ACTIVE POWER designed FESS systems shall be
                  manufactured and produced in accordance with and shall comply
                  with the GE design and specification requirements referenced
                  in Attachment A [****];

                  (b)      Subject to the Agreement, ACTIVE POWER hereby
                  appoints and grants to GE and its affiliates, as defined
                  below, and GE hereby accepts form ACTIVE POWER, a
                  non-transferable, royalty-free, right and license to: (i)
                  non-exclusivity purchase, market, distribution and resell the
                  ACTIVE POWER flywheel products used with uninterruptible power
                  systems ("UPS") described in Attached B (hereinafter referred
                  to as the "standard CleanSource products from ACTIVE POWER")
                  to end-users located world-wide (hereinafter referred to as
                  the "End Users"); (ii) incorporate private and/or co-labeling
                  of the ACTIVE POWER products using GE logos (where approved
                  exclusively by GE). During the term of this Agreement, GE and
                  it affiliates may hold themselves out to the public as an
                  authorized reseller of ACTIVE POWER products.

                  (c)      ACTIVE POWER further acknowledges that GE's
                  willingness to pursue placement of volume of Equipment orders
                  with ACTIVE POWER is subject to ACTIVE POWER demonstrating to
                  the satisfaction of GE, among other reasonable requirements
                  that GE may establish for purchase of the Equipment: (1)
                  completion of first piece qualification of the Equipment, (2)
                  that ACTIVE POWER has the necessary capacity, equipment and
                  resources to timely and properly supply the Equipment, (3)
                  that ACTIVE POWER can meet the price, Six Sigma quality and
                  delivery targets and requirements for the Equipment
                  established by GE, and (4) that the Equipment will conform to
                  any GE-supplied or approved drawings and specifications issued
                  for the Equipment. The Parties acknowledge that the quantities
                  of the

                                       1
 **Confidential treatment has been requested for the portions of this agreement
marked by asterisks. Omitted material for which confidential treatment has been
requested has been filed separately with the Securities and Exchange
Commission.**

<PAGE>

                  Equipment identified on Attachment B are GE's current estimate
                  of its needs for Equipment during the time period specified
                  and are subject to adjustment to the discretion of GE based on
                  its actual volume, customer and business requirements. GE
                  shall provide to ACTIVE POWER at the beginning of each
                  calendar quarter (by the 15th of the first month), a forecast
                  of orders for that calendar quarter along with a preliminary
                  forecast for the following quarter (i.e. on April 1, forecast
                  for Q2 as well as a preliminary forecast for Q3). Forecasts
                  provided by GE shall not create any commitment by or
                  obligation upon GE to place any order. Within 10 business days
                  of GE submitting such forecast, ACTIVE POWER shall confirm its
                  capacity to meet forecast demand for the following two
                  quarters. Upon such confirmation, ACTIVE POWER guarantees to
                  sell such volume to GE in any quarter upon its request, within
                  the established lead times defined in Attachment B. The scope,
                  price, cycle, schedule and other requirements are set forth on
                  Attachment B hereto;

                  (d)      ACTIVE POWER pricing shall be [****] and mutually
                  agreed upon by GE, as set forth in Attachment B.

                  (e)      The commercial provisions of this MSA include the
                  terms of Attachment C "GEDE Master Terms and Conditions -
                  GEDE-STD-0001 Rev. A";

                  (f)      The Parties may agree to additional provisions
                  appropriate for a multi-year sourcing agreement between the
                  Parties, including provisions providing for ACTIVE POWER
                  on-line access to GE drawings and the extranet, and
                  confidentiality, compliance with laws and termination for
                  cause provisions consistent with those set forth in Attachment
                  C.

                  (g)      ACTIVE POWER agrees to provide application, technical
                  and engineering support for GE bid proposal activity and
                  related system design reviews on site, as requested. ACTIVE
                  POWER shall provide GE with phone support for technical,
                  service and field installation related questions. ACTIVE POWER
                  shall provide supervision of start-up and commissioning of
                  field installations as set forth in Attachment D and
                  instructed by the GE Purchase Order.

                  (h)      ACTIVE POWER shall provide documentation to GE for
                  purposes of providing maintenance on ACTIVE POWER products.
                  ACTIVE POWER shall provide this documentation in both written
                  and electronic form as well grant GE a royalty-free license to
                  reproduce materials for said maintenance purposes.

                  (i)      ACTIVE POWER shall offer to GE designated
                  representative(s) factory training at a mutually agreed to
                  price schedule and intervals as referred to in Attachment D.

         2.       Effective Date and Agreement Expiration. This MSA shall
                  commence on the date first written above and, except as
                  otherwise provided herein, shall continue for an initial term
                  through October 30, 2002. This Agreement will be extended in
                  additional one (1) year terms, given the performance by both
                  parties as outlined in the Agreement, except that either party
                  may terminate this Agreement by giving the other written
                  notice of termination not less than sixty (60) days prior to
                  the expiration of the initial term or any renewal term.

         3.       Confidentiality. No announcement or statement concerning this
                  MSA or the subject matter of, or any matter referred to in,
                  this MSA shall be made or issued by or on behalf of either
                  Party without the prior written approval of the other,
                  provided that nothing shall restrict the making by one party
                  (even in the absence of agreement by the other) of any
                  statement which may be required by law or called for by the
                  requirements of any recognized stock exchange on which its
                  shares or other securities are traded (but then only to the
                  extent so required).

         4.       Confidential Information. Each party agrees to protect
                  information in accordance with Attachment E, Confidentiality
                  Agreement Dated July 10, 2001.

                                       2
**Confidential treatment has been requested for the portions of this agreement
marked by asterisks. Omitted material for which confidential treatment has been
requested has been filed separately with the Securities and Exchange
Commission.**

<PAGE>

         5.       Counterparts. This MSA may be signed in any number of
                  counterparts, each of which shall be an original, with the
                  same effect as if the signatures were upon the same
                  instrument.

         6.       Governing Law. This MSA shall be governed and construed in
                  accordance with the laws of the State of New York, USA
                  (without regard to the conflicts of law rules of such
                  jurisdiction).

         7.       Assignment. Neither Party shall assign its rights and
                  obligations hereunder to any third party without the prior
                  written consent of the Party; provided, that either Party may
                  assign any of its rights and obligations hereunder to any
                  controlled affiliate of such Party, but such Party shall
                  remain primarily liable hereunder.

         8.       Notices. All notices and Orders permitted or required to be
                  given under this Agreement shall be in writing and shall be
                  deemed duly given upon personal delivery, transmitted by
                  facsimile machine or electronically via the internet and duly
                  acknowledge to the address or facsimile numbers or e-mail
                  addresses set-forth below. All notices below or to any other
                  facsimile number or e-mail address as the party may designate
                  by ten (10) days prior written notice given in accordance with
                  this provision.

                  If to ACTIVE POWER:                If to GE:
                  -------------------                ---------
                  Active Power                       GE Digital Energy
                  11525 Stonehollow Drive            4200 Wildwood Parkway 32-12
                  Suite 110                          Atlanta, GA 30339
                  Austin, Texas 78758                Attention: Sourcing Manager
                  Attention:  Vice President Sales   Randolph M. Rowe
                              Bill Ott

                  FAX:  512-836-4511                 FAX:  678-844-5925

                  Email: bott@activepower.com        Email: randy.rowe@ps.ge.com

         9.       Entire Agreement. This MSA contains the entire agreement of
                  the Parties with respect to the subject matter hereof. All
                  prior correspondence, negotiations and agreements, oral or
                  written, among the Parties with respect to the subject matter
                  hereof are superseded by this MSA. Notwithstanding the terms
                  of this MSA, or any issued purchase orders between the Parties
                  and their affiliates shall remain in full force and effect in
                  accordance with their terms until such time as they are
                  modified or amended by separate written agreement by the
                  Parties or their respective affiliates. No variation,
                  supplement, deletion or replacement of this MSA or any of its
                  terms shall be effective unless made in writing and signed by
                  each of the Parties hereto.

         IN WITNESS WHEREOF, the Parties have caused this MSA to be executed by
this respective authorized representatives as of the date first set forth above.

GENERAL ELECTRIC COMPANY                        ACTIVE POWER, INC.


By:  /s/                                        By: /s/
    ----------------------------------------       -----------------------------

Name:       Randolph M. Rowe                    Name:    Bill Ott
       -------------------------------------          --------------------------

Title:         Sourcing Leader                  Title:  Vice President,
                                                        Sales & Service
        ------------------------------------          --------------------------

<PAGE>

                                  ATTACHMENT A

Flywheel Energy Storage System ("FESS"):


         [****]



                                       4
**Confidential treatment has been requested for the portions of this agreement
marked by asterisks. Omitted material for which confidential treatment has been
requested has been filed separately with the Securities and Exchange
Commission.**

<PAGE>

                                  ATTACHMENT B


ACTIVE POWER commits to offer [****] on each opportunity GE requests ACTIVE
POWER with a not to exceed price levels noted below:

Product:          ACTIVE POWER CleanSource 2 Flywheel Energy Storage System
                  ---------------------------------------------------------

                  250kW Flywheel Energy Storage Systems
                  Key Product Features:

                  o         Single flywheel configuration.
                  o         DC power ranges of 40kW for 120 seconds up to 250kW
                            for 12.5 seconds of ride-through.
                  o         Remote Monitoring Interface and Software

                  500kW Flywheel Energy Storage Systems
                  Key Product Features:

                  o        Dual flywheel configuration.
                  o        DC power ranges of 40KW for 120 seconds up to 500KW
                           for 12.5 seconds of ride-through.
                  o        Remote Monitoring Interface and Software

                  Produced in Compliance with:

                  o        UL 1778 (CUL), Standards for Uninterruptible Power
                           Supply Equipment CE Mark
                  o        FCC Rules and Regulation of Part 15, Subpart J, Class
                           A
                  o        National Electrical Manufacturer's Association (NEMA)
                  o        National Fire Protection Association (NFPA-70)
                  o        National Electrical Code (NEC)
                  o        Occupational Safety & Health Administration (OSHA)

Demand Forecast:

                  On a quarterly basis, GE shall provide ACTIVE POWER with an
                  updated forecast of GE's semi-annual product requirements. For
                  released purchase orders, GE shall provide ACTIVE POWER a firm
                  90-day delivery requirement schedule.


                  [****]


                                       5
**Confidential treatment has been requested for the portions of this agreement
marked by asterisks. Omitted material for which confidential treatment has been
requested has been filed separately with the Securities and Exchange
Commission.**

<PAGE>

                            ATTACHMENT B (continued)

Pricing Schedule:

                  [****]

--------------------------------------------------------------------------------
            General Electric Digital Energy
--------------------------------------------------------------------------------
             Active Power CleanSource 2 Flywheel Quotation
--------------------------------------------------------------------------------
                         10-Jul-01
--------------------------------------------------------------------------------
                           Item                               List Price
--------------------------------------------------------------------------------
CS2/250 Flywheel System                                         [****]
--------------------------------------------------------------------------------
CS2/500 Flywheel System
--------------------------------------------------------------------------------
CS2/250 DC Disconnect
--------------------------------------------------------------------------------
CS2/500 DC Disconnect
--------------------------------------------------------------------------------
CSView Software
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Total
--------------------------------------------------------------------------------


--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

Options (Purchased with initial order)
--------------------------------------------------------------------------------
CS2/250 Year 2 Parts Only Extended Warranty
--------------------------------------------------------------------------------
CS2/250 Year 3 Parts Only Extended Warranty
--------------------------------------------------------------------------------
CS2/500 Year 2 Parts Only Extended Warranty
--------------------------------------------------------------------------------
CS2/500 Year 3 Parts Only Extended Warranty
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Extended Total
--------------------------------------------------------------------------------


The pricing set forth in the table above is based on GE making the following
Volume Commitment and is fixed for the initial term of this Agreement.

                                VOLUME COMMITMENT
                                -----------------

                                     [****]

In the event this volume is not achieved by the end of the contract period,
ACTIVE POWER shall invoice GE for the difference between the commitment and
actual purchases (includes recovery of unearned discounts, future price
adjustments, etc.). ACTIVE POWER'S discount schedule is set forth below the
following example.

                  [****]


                                       6
**Confidential treatment has been requested for the portions of this agreement
marked by asterisks. Omitted material for which confidential treatment has been
requested has been filed separately with the Securities and Exchange
Commission.**

<PAGE>

                            ATTACHMENT B (continued)

--------------------------------------------------------------------
                      Active          Power
--------------------------------------------------------------------
                             [****]
--------------------------------------------------------------------
--------------------------------------------------------------------
    Annual           CS2-250         CS2-500
    ------           -------         -------
--------------------------------------------------------------------
   Volume $K        Unit Price      Unit Price
   ---------        ----------      ----------
--------------------------------------------------------------------
                      [****]          [****]
--------------------------------------------------------------------
 (less than)500
--------------------------------------------------------------------
 501-1000
--------------------------------------------------------------------
 1001-2000
--------------------------------------------------------------------
 2001-4000
--------------------------------------------------------------------
 4001-6000
--------------------------------------------------------------------
 6001-10000
--------------------------------------------------------------------
  10001(and greater)
--------------------------------------------------------------------

--------------------------------------------------------------------

Productivity
                  Continuous Improvement & Six Sigma
                  ----------------------------------

                  ACTIVE POWER shall commit to a mutually agreed to Continuous
                  Improvement program addressing product performance, cost
                  improvement and cycle time reduction. GE shall work with
                  ACTIVE POWER on Six Sigma projects to support this effort.
                  Improvements shall be negotiated and mutually shared.

Invoice and Payment Terms

                  ACTIVE POWER Invoices, in US Dollars, shall be presented at
                  the time of shipment release, after release from FOB - Austin,
                  Texas. [****]

Lead Times, Cycle and Delivery Schedule

                  FESS units order shall be delivered in accordance with
                  instructions in the released purchase order.

                  [****]







                                       7
**Confidential treatment has been requested for the portions of this agreement
marked by asterisks. Omitted material for which confidential treatment has been
requested has been filed separately with the Securities and Exchange
Commission.**

<PAGE>

                            ATTACHMENT B (continued)

[****]









                                       8
**Confidential treatment has been requested for the portions of this agreement
marked by asterisks. Omitted material for which confidential treatment has been
requested has been filed separately with the Securities and Exchange
Commission.**

<PAGE>

                                  ATTACHMENT C




          "GEDE Master Terms and Conditions - GEDE-STD-0001 Rev. B-AP"

                         (Referenced document attached)

<PAGE>

                                  ATTACHMENT D


                           ACTIVE POWER FESS training


         ACTIVE POWER shall offer GE designated representative(s) training on
         installation, operation, maintenance and repair of their FESS systems.

         Factory Training

         ACTIVE POWER offers to provide 1 free training class for GE's training
         staff and technical support personnel, such training class shall be for
         up to seven people. Active Power will provide GE two free sets of the
         tools identified in the table below for the training staff class. GE
         may purchase additional sets of tools at a 25% discount from the
         identified list price.
<TABLE>
<CAPTION>

         --------------------------------------------------------------------------------------------------------------
         Part        Description                                                 Active Power List Price    QTY
         Number
         --------------------------------------------------------------------------------------------------------------
         <S>                                                                     <C>                        <C>
         55520       TOOL, BEARING INSERTION, FLYWHEEL ASSY.                     $              155.00      1
         --------------------------------------------------------------------------------------------------------------
         55530       TOOL, BEARING REMOVAL                                       $              210.00      1
         --------------------------------------------------------------------------------------------------------------
         55521       TOOL, GUIDE PIN, BRG CARTRIDGE                              $               40.00      2
         --------------------------------------------------------------------------------------------------------------
         55550       TOOL, ROTOR SHIM, APS ROTOR                                 $               40.00      4
         --------------------------------------------------------------------------------------------------------------
         90008       KIT, SPARE, SHIM                                            $               80.00      1
         --------------------------------------------------------------------------------------------------------------
         67002       Software, CS View                                           $              950.00      1
         --------------------------------------------------------------------------------------------------------------

</TABLE>

         Active Power also agrees to provide Training classes at a 25%
         discounted rate from ACTIVE POWER published training rates. These rates
         are currently set at $4,000 per class of up to seven people. GE shall
         be responsible for its own travel and living arrangements during these
         sessions.

         As required, ACTIVE POWER agrees to work with GE to arrange and support
         specific training requirements.

         Field Training

         Commencing after shipment of the first unit, for six months, or until
         the members of the training staff (attendees of free training class)
         are certified, whichever is earlier, ACTIVE POWER shall provide free
         on-site assistance for 1 working day during the start up, commissioning
         and acceptance of a FESS system. If additional on-site assistance is
         required after the system acceptance, GE shall pay Active Power's
         standard billing rates, less a 25% discount. All travel and lodging
         expenses shall be paid in full at their actual cost.

         Warranty Service Obligations

         GE service personnel shall provide all warranty service for the FESS
         systems sold by GE. ACTIVE POWER shall reimburse GE for agreed upon
         expenses for labor, and ACTIVE POWER's warranty shall govern costs
         related to parts. Within 60 days from the date of this Agreement, the
         Parties shall agree on the following:

         1.       Spare Part Pricing Schedule
         2.       Spare Part Inventory List
         3.       Warranty Labor Billing Rates from GEDE back to Active Power

<PAGE>

                                  ATTACHMENT E

                         Mutual Non-Disclosure Agreement

                         (Referenced document attached)