AMENDMENT NO. 2 TO ESCROW AGREEMENT


                  THIS AMENDMENT NO. 2 to the Escrow Agreement is made as of the
1st day of November, 2002 (as supplemented or modified from time to time, this
"Agreement") by and  among AJG Financial Services, Inc., through its  Vice-
President, General Counsel as agent (the "Major Shareholder Agent") for Bernard
J. Zahren, Finova Mezzanine  Capital Corp., AJG Financial Services, Inc.,
Environmental Opportunities Fund (by itself and as successor to Environmental
Opportunities Fund Cayman), Fredric Rose, M&R  Associates, Martin F. Laughlin,
Richard  C. Augustine  and Michael J. Carolan (each, an "Initial Major
Shareholder") and for Stephen Rosenberg, U.S. Energy Systems, Inc., a Delaware
corporation ("USE"), and Zahren Alternative Power Corporation, as the successor
to USE Acquisition Corp. a Delaware corporation (the "Sub" and together with USE
, the "USE Parties"), Cinergy Energy Solutions, Inc., a Delaware corporation
("CES" and together with the USE Parties, the "Beneficiaries"), and Tannenbaum
Helpern Syracuse & Hirschtritt LLP having an office at 900 Third Ave., New York,
New York, 10022 (the "Escrow Agent"). Unless indicated otherwise, capitalized
terms shall have the same meanings herein as they have in the Escrow Agreement
(as defined below).


                              W I T N E S S E T H:

                  WHEREAS, the parties hereto and the Initial Major Shareholders
have previously entered into that certain Escrow Agreement dated as of November
28, 2000 (as amended by Amendment No. 1 dated as of May 11, 2001, the "Escrow
Agreement");



                  WHEREAS, the parties hereto now wish to amend the Escrow
Agreement;

                  NOW, THEREFORE, in consideration of $10.00 and other
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:


                  1.  The last sentence of Section 3(d) of the Escrow Agreement
                      is hereby amended by deleting the existing sentence in its
                      entirety and inserting in its place the following
                      sentence:


                      The "Release Date" shall be the date twenty one months
                      following the Closing Date.

                   2. Except as amended hereby, the Escrow Agreement is hereby
                      ratified and confirmed and, as so amended, remains in full
                      force and effect on the date hereof.

<PAGE>

                  IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be Executed as of the date first written above.


                                      MAJOR SHAREHOLDER AGENT:
                                      AJG FINANCIAL SERVICES, INC.


                                      By: /s/ John C. Rosengren
                                              -----------------
                                         Name:John C. Rosengren
                                         Title: Vice President & General Counsel
                                         For: AJG Finacial Services, Inc.


                                         CINERGY ENERGY SOLUTIONS, INC.:


                                         By:/s/  Donna Robichaud
                                                 ---------------
                                            Name: Donna Robichaud
                                            Title:Vice President


                                         U.S. ENERGY SYSTEMS, INC.:


                                         By: /s/  Goran Mornhed
                                                 --------------------
                                            Name: Goran Mornhed
                                            Title:Chief Executive Officer


                                         U.S. ENERGY BIOGAS CORPORATION

                                         By: /s/ Frank Fitzgerald
                                                 ----------------
                                            Name:Frank FItagerald
                                            Title: Treasurer


                                           ESCROW AGENT:

                                           TANNENBAUM HELPERN SYRACUSE &
                                           HIRSCHTRITT LLP

                                           By: /s/ Stephen Rosenberg
                                               -------------------------
                                                   Stephen Rosenberg
                                                   A Member of the Firm