<PAGE>   1
                                                                   EXHIBIT 10.2


                            U.S. ENERGY SYSTEMS, INC.

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

                             1997 STOCK OPTION PLAN

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



         1. STATEMENT OF PURPOSE. This 1997 Stock Option Plan (the "Plan") is
intended to provide certain employees, directors (both employee and non-employee
directors), independent contractors and consultants of U.S. Energy Systems,
Inc., a Delaware corporation (the "Company"), and its subsidiaries with an added
incentive to provide their services to the Company and to induce them to exert
their maximum effort toward the Company's success through the encouragement of
stock ownership in the Company by such persons.

         2. ADMINISTRATION. The Plan shall be administered by a committee (the
"Committee"), appointed by the Board of Directors, consisting of two or more
outside directors (each of whom qualifies as a "non-employee director" under
Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), whose interpretation of the terms and provisions of the Plan shall be
final and conclusive. The selection of employees, directors (both employee and
non-employee directors), independent contractors and consultants for
participation in the Plan and all decisions concerning the timing, pricing and
amount of any grant or award under the Plan shall be made solely by the
Committee. In the event a Committee of two or more qualifying directors cannot
be formed, the Plan shall be administered by the Board of Directors. No member
of the Board of Directors or of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any option granted
or option agreement entered into hereunder.

         3. ELIGIBILITY. Options shall be granted only to employees (including
officers) and directors (employee and non-employee directors) of the Company and
it subsidiaries, as well as independent contractors and consultants performing
services for the Company and it subsidiaries (collectively, the "Optionees"),
selected initially and from time to time by the Committee on the basis of their
importance to the business of the Company or its subsidiaries.

         4. GRANTING OF OPTIONS. Subject to Section 10 of the Plan, the Company
may grant to Optionees from time to time options to purchase an aggregate of up
to 1,000,000 shares of the Company's common stock, par value $.01 per share (the
"Common Stock"). In the event that an option expires or is terminated or
canceled unexercised as to any shares, such released shares may again be
optioned (including a grant in substitution for a canceled option). Shares
subject to options may be made available from authorized and unissued shares of
Common Stock. Options granted under the Plan shall not constitute "incentive
stock options" for purposes of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"). All options granted pursuant to the Plan shall be
evidenced by agreements, to be executed by the Company and by the Optionee, in
such form or forms as the Committee shall from time to time determine. Option
agreements covering options granted from time to time or at the same time need
not contain provisions specified in the Plan; provided, however, that all such
option agreements shall comply with all terms and provisions of the Plan. The
date of grant of an option under this Plan shall be the date as of which the
Committee approves the grant.

         5. OPTION PRICE. The option price shall be determined by the Committee
and, subject to the provisions of Section 10 hereof, shall be not less than the
fair market value, as determined by the Committee at the time the option is
granted, of the shares of Common Stock subject to the option.

         6. DURATION OF OPTIONS, INCREMENTS AND EXTENSIONS. Subject to the
provisions of Section 8 hereof, each option shall be for such term of not less
than five years nor more than 10 years, as shall be determined by the Committee
at the time the option is granted. Each option shall become exercisable with
respect to 25% of the total number of shares subject to the option 12 months




                                       1
<PAGE>   2



after the date of its grant and with respect to each additional 25% at the end
of each 12-month period thereafter during the succeeding three years.
Notwithstanding the foregoing, the Committee may in its discretion (i)
specifically provide for another time or times of exercise at the time the
option is granted; (ii) accelerate the exercisability of any option subject to
such terms and conditions as the Committee deems necessary and appropriate; or
(iii) at any time prior to the expiration or termination of any option
previously granted, extend the term of any option (including such options held
by officers) for such additional period as the Committee in its discretion shall
determine. In no event, however, shall the aggregate option period with respect
to any option, including the original term of the option and any extensions
thereof, exceed 10 years. Subject to the foregoing and the other provisions of
this Plan, all or any part of the shares to which the right to purchase has
accrued may be purchased at the time of such accrual or at any time or times
thereafter during the option period.

         In the event of a Change in Control (as defined below), all outstanding
options shall become immediately exercisable. Notwithstanding any other
provisions hereunder, during the period of 30 days after a Change in Control,
each Optionee shall have the right to require the Company to purchase from such
Optionee any option granted under this Plan at a purchase price equal to the
excess of fair market value per share over the option price multiplied by the
number of option shares specified by the Optionee for purchase in a written
notice to the Company, attention of the Secretary. A "Change in Control" shall
be deemed to occur if any person (i) shall acquire direct or indirect control of
at least 50% of the outstanding voting stock, or (ii) has the power (whether
such power arises as a result of the ownership of capital stock by contract or
otherwise) or the ability to elect or cause the election of directors consisting
at the time of such election of a majority of the Company's Board of Directors.
As used herein, "person" shall mean any person, corporation, partnership, joint
venture or other entity or any group (as such term is defined in Section 13(d)
of the Exchange Act, and the rules promulgated thereunder). For purposes of this
paragraph, "fair market value per share" shall mean the average of the highest
sales price per share of the Common Stock as quoted on the Nasdaq SmallCap
Market, or by the principal exchange upon which the Common Stock is listed, on
each of the five trading days immediately preceding the date on which such
individual so notifies the Company. The amount payable to each such individual
by the Company shall be in cash or by certified check and shall be reduced by
any taxes required to be withheld.

         7. EXERCISE OF OPTION. As a condition to the exercise of any option,
the Quoted Price (as defined below) per share of Common Stock on the date of
exercise must be equal to or exceed the option price referred to in Section 5
hereof. An option may be exercised by giving written notice to the Company,
attention of the Secretary, specifying the number of shares to be purchased,
accompanied by the full purchase price for the shares to be purchased (i) in
cash, (ii) by check, (iii) to the extent permitted by applicable law by a
promissory note in a form specified by the Company and payable to the Company no
later than 15 business days after the date of exercise of the option, (iv) if so
approved by the Committee, by shares of Common Stock of the Company, (v) by
delivering a written direction to the Company that the option be exercised
pursuant to a "cashless" exercise/sale procedure (pursuant to which funds to pay
for exercise of the option are delivered to the Company by a broker upon receipt
of stock certificates from the Company) or a cashless exercise/loan procedure
(pursuant to which the Optionee would obtain a margin loan from a broker to fund
the exercise) through a licensed broker acceptable to the Company whereby the
stock certificate or certificates for the shares for which the option is
exercised will be delivered to such broker as the agent for the individual
exercising the option and the broker will deliver to the Company cash (or cash
equivalents acceptable to the Company) equal to the option price for the shares
of Common Stock purchased pursuant to the exercise of the option plus the amount
(if any) of federal and other taxes that the Company may, in its judgment, be
required to withhold with respect to the exercise of the option or (vi) by a
combination of these methods of payment. The "Quoted Price" and the per share
value of Common Stock for purposes of paying the option price in accordance with
the immediately preceding sentence shall equal the closing selling price per
share of Common Stock one business day prior to the exercise date.

         At any time of any exercise of any option, the Company may, if it shall
determine it necessary or desirable for any reason, require the Optionee (or his
or her heirs, legatees or legal representative, as the case may be), as a
condition upon the exercise thereof, to deliver to the Company a written
representation of present intention to purchase the shares for investment and
not for distribution. In the event such representation is required to be
delivered, an appropriate legend may be placed upon each certificate delivered
to the Optionee (or his or her heirs, legatees or legal representative, as the
case may be) upon his or her exercise of part or all of the option and a stop
transfer order may be placed with the transfer agent. Each option shall also be



                                       2
<PAGE>   3


subject to the requirement that, if at any time the Company determines, in its
discretion, that the listing, registration or qualification of the shares
subject to the option upon any securities exchange or under any state or federal
law, or the consent or approval of any governmental regulatory body is necessary
or desirable as a condition of or in connection with, the issuance or purchase
of the shares thereunder, the option may not be exercised in whole or in part
unless such listing, registration, qualification, consent or approval shall have
been effected or obtained free of any conditions not acceptable to the Company
in its sole discretion. The Company shall not be obligated to take any
affirmative action in order to cause the exercisability or vesting of an option
or to cause the exercise of an option or the issuance of shares pursuant thereto
to comply with any law or regulation of any governmental authority.

         At the time of the exercise of any option, the Committee may require,
as a condition of the exercise of such option, the Optionee (i) to pay the
Company an amount equal to the amount of tax the Company may be required to
withhold to obtain a deduction for federal income tax purposes as a result of
the exercise of such option by the Optionee, or (ii) to make such other
arrangements with the Company which would enable the Company to pay such
withholding tax, including, without limitation, holding back a number of shares
issuable upon exercise of the option equal to the amount of such withholding
tax, or permitting the Optionee to deliver a promissory note in a form specified
by the Committee or withhold taxes from other compensation payable to the
Optionee by the Company, or (iii) a combination of the foregoing.

         8. TERMINATION OF RELATIONSHIP AND EXERCISE THEREAFTER. In the event
the employment, directorship, contractor or consulting relationship between the
Company and an Optionee is terminated for any reason other than death, permanent
disability or retirement, such Optionee's options shall expire and all rights to
purchase shares pursuant thereto shall terminate immediately. The Committee may,
in its sole discretion, permit any option to remain exercisable for such period
after such termination as the Committee may prescribe, but in no event after the
expiration date of the option. Unless otherwise determined by the Committee,
temporary absence from employment or as a member of the Board of Directors, an
independent contractor or a consultant because of illness, vacation, approved
leaves of absence and transfers of employment among the Company and its
subsidiaries, shall not be considered to terminate employment, directorship or
contract or consulting relationship or to interrupt continuous employment,
directorship or contract or consulting relationship.

         In the event of termination of said relationship because of death,
permanent disability (as that term is defined in Section 22(e)(3) of the Code,
as now in effect or as subsequently amended), or retirement, the option may be
exercised in full, without regard to any installments or vesting schedule
established under Section 6 hereof, by the Optionee or, if he or she is not
living, by his or her heirs, legatees or legal representatives (as the case may
be) during its specific term prior to three years after the date of death,
permanent disability or retirement, or such longer period as the Committee may
prescribe, but in no event after the expiration date of the option.

         9. NON-TRANSFERABILITY. During the lifetime of the Optionee, options
shall be exercisable only by the Optionee, and options shall not be assignable
or transferable by the Optionee otherwise than by will or by the laws of descent
and distribution, or pursuant to a qualified domestic relations order as defined
by the Code, or Title I of the Employment Retirement Income Security Act of
1974, as amended, or the rules thereunder.

         10. ADJUSTMENTS. The number of shares subject to the Plan and options
granted under the Plan shall be adjusted as follows: (i) in the event that the
number of outstanding shares of Common Stock is changed by any stock dividend,
stock split or combination of shares, the number of shares subject to the Plan
and to options granted hereunder shall be proportionately adjusted; (ii) in the
event of any merger, consolidation or reorganization of the Company with any
other corporation or corporations, there shall be substituted, on an equitable
basis, for each share of Common Stock then subject to the Plan, whether or not
at the time subject to outstanding options, the number and kind of shares of
stock or other securities to which the holders of shares of Common Stock will be
entitled pursuant to the transaction; and (iii) in the event of any other
relevant change in the capitalization of the Company, an equitable adjustment
shall be made in the number of shares of Common Stock then subject to the Plan,
whether or not then subject to outstanding options. In the event of any such
adjustment, the purchase price per share shall be proportionately adjusted. The
grant of an option pursuant to the Plan shall not affect or limit in any way the
right or power of the Company to make adjustments, reclassifications,
reorganizations or changes in its capital or business structure or to merge,
consolidate, dissolve or liquidate, or to sell or transfer all or any part of
its business or capital.



                                       3
<PAGE>   4


         11. AMENDMENT OF PLAN. The Board of Directors may amend or discontinue
the Plan at any time. However, no amendment or discontinuance shall be made
without the requisite approval of the shareholders of the Company if such
approval is required for the Plan to comply with the provisions of any
applicable law.

         12. CASH PROCEEDS. Any cash proceeds received by the Company from the
sale of shares pursuant to the options granted under the Plan shall be used for
general corporate purposes.

         13. NO IMPAIRMENT OF RIGHTS. Nothing contained in the Plan or any
option granted pursuant thereto shall confer upon any Optionee any right to be
continued in the employment of the Company or its subsidiaries or to be
continued as an independent contractor or a consultant to the Company or its
subsidiaries, or interfere in any way with the right of the Company or its
subsidiaries to terminate such employment or contract or consulting relationship
and/or to remove any Optionee who is a director from service on the Board of
Directors of the Company or its subsidiaries at any time in accordance with the
Company's By-Laws or any provisions of applicable law.

         14. COMPLIANCE WITH RULE 16B-3. The Plan is intended to comply with all
provisions of Rule 16b-3 or its successors promulgated under the Exchange Act
necessary to secure an exemption from Section 16(b) of the Exchange Act for
participating officers and directors, regardless of whether such provisions are
set forth in the Plan. To the extent any provision of the Plan or action of the
Plan administrators fails to so comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by the Plan administrators.

         15. SEVERABILITY. If any provision of the Plan or any option agreement
shall be determined to be illegal or unenforceable by any court of law in any
jurisdiction, the remaining provisions hereof and thereof shall be severable and
enforceable in accordance with their terms, and all provisions shall remain
enforceable in any other jurisdiction.

         16. GOVERNING LAW. The validity and construction of this Plan and the
instruments evidencing the options granted hereunder shall be governed by the
laws of the State of Delaware (excluding its choice of law rules).

         17. EFFECTIVE DATE. The Plan shall be effective as of November 13,
1997.



                                       4