PERFORMANCE GUARANTY OF CINERGY SOLUTIONS HOLDING COMPANY, INC.

         This  Performance  Guaranty,  dated as of November 28, 2000, is made by
Cinergy   Solutions   Holding  Company,   Inc.,  a  Delaware   corporation  (the
"Guarantor"), for the benefit of:

the counterparties to the ESCROW AGREEMENT dated as of the 28th day of November,
2000,  by and among  Bernard J. Zahren,  Finova  Mezzanine  Capital  Corp.,  AJG
Financial  Services,  Inc.,  Environmental   Opportunities  Fund,  Environmental
Opportunities  Fund Cayman,  Frederic Rose, M&R Associates,  Martin F. Laughlin,
Richard C.  Augustine and Michael J. Carolan,  and their heirs,  successors  and
assigns (each a "Major  Shareholder" of ZAHREN ALTERNATIVE POWER CORPORATION,  a
Delaware  corporation  ("Zapco")),  the  Vice-President,  General Counsel of AJG
Financial  Services,  Inc.,  as agent for the  Major  Shareholders  (the  "Major
Shareholder Agent,") U.S. Energy Systems,  Inc., a Delaware corporation ("USE"),
and USE  Acquisition  Corp.  a Delaware  corporation  ("USAC"),  Cinergy  Energy
Solutions, Inc., a Delaware corporation and indirect, wholly-owned subsidiary of
Guarantor  ("CES"),  and Tannenbaum Helpern Syracuse & Hirschtritt LLP having an
office at 900 Third Ave., New York, New York, 10022 (the "Escrow Agent");

the counterparties to the STOCKHOLDERS' AND VOTING AGREEMENT, entered into as of
November  28, 2000, among  USE, the stockholders of  USE who  are signatories
thereto, the Major Shareholders, and Cinergy Solutions, Inc. ("CSI");

the  counterparties  to the  INDEMNIFICATION  AGREEMENT dated as of November 28,
2000, by and among ZAPCO, the Major  Shareholders,  the Major Shareholder Agent,
USE, USAC, and CES (the "First Indemnification Agreement");

the  counterparties  to the  INDEMNIFICATION  AGREEMENT dated as of November 28,
2000, by and among USE, USAC, and CES (the "Second Indemnification Agreement");

the counterparties to the SUBSCRIPTION AGREEMENT made and entered into as of the
28th day of November, 2000, between and among CES, USE and USAC;

the counterparties to the STOCKHOLDERS AGREEMENT dated as of  November 28, 2000,
by and among USAC, USE, and CES;

the counterparties  of  the TERMINATION FEE AGREEMENT dated as  of  November 28,
2000, by and among USE, CES and ZAPCO;

The  ESCROW  AGREEMENT,  the  STOCKHOLDERS'  AND  VOTING  AGREEMENT,  the  First
Indemnification   Agreement,   the   Second   Indemnification   Agreement,   the
SUBSCRIPTION  AGREEMENT,  the  STOCKHOLDERS  AGREEMENT,  and the TERMINATION FEE
AGREEMENT are collectively referred to herein as the "Agreements."

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<PAGE>

The counterparties to each of the Agreements are collectively referred to herein
as the "Counterparties," and individually as the "Counterparty." CES and CSI are
individually  referred  to  herein  as the  "Cinergy  Party,"  and  collectively
referred to herein as the "Cinergy Parties."

         WHEREAS,  the Counterparties have entered into or will be entering into
the Agreements with CES.

         NOW,  THEREFORE,  in  consideration  of, and as an inducement  for, the
Counterparties entering into the Agreements,  the Guarantor hereby covenants and
agrees as follows:

1.       GUARANTY OF OBLIGATIONS

The  Guarantor  hereby   unconditionally  and  irrevocably   guarantees  to  the
Counterparties,  the due and punctual  performance of, and compliance  with: (i)
the obligation to make the Contingent  Merger Payment of the Merger Sub (as such
terms is defined in the AGREEMENT AND PLAN OF REORGANIZATION  AND MERGER,  dated
as of November 28, 2000 (the "Merger Agreement"));  provided,  however, that the
Guarantor's  obligations with respect to the Contingent Merger Payment shall not
exceed 37.5% of (a) the Contingent  Merger Payment less (b) any reduction to the
contingent merger payment pursuant to the  Indemnification  Agreement;  (ii) all
obligations, covenants, terms and conditions to be performed or complied with by
the Cinergy  Parties,  pursuant to the Agreements  (the obligation of the Merger
Sub to the  make the  Contingent  Merger  Payment,  and all  obligations  of the
Cinergy Parties under the Agreements  being referred to  collectively  herein as
the "Obligations").  Such guaranty will not terminate until the Obligations have
been performed in full by the Merger Sub and the Cinergy  Parties or performance
has been waived by all of the Counterparties.

2.       OBLIGATIONS ABSOLUTE

The  obligations of the Guarantor  hereunder are primary and not as surety only,
and the Guarantor  expressly waives any legal obligation,  duty or necessity for
the  Counterparties  to proceed first against the the Merger Sub or such Cinergy
Party as appropriate or to exhaust any remedy it may have against the Merger Sub
or such Cinergy Party as appropriate, provided, however, that the Counterparties
agree that they will not proceed to enforce this guaranty  directly  against the
Guarantor  until after first making written demand for performance on the Merger
Sub or such  Cinergy  Party as  appropriate,  unless such  written  demand would
violate the automatic stay applicable to the Merger Sub or such Cinergy Party as
appropriate pursuant to any bankruptcy proceeding relating to such Merger Sub or
such Cinergy Party as appropriate.

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<PAGE>

Upon the  failure by either the Merger Sub or a Cinergy  Party to fulfill any of
their  respective  Obligations,   the  Guarantor  shall  forthwith  assume  such
Obligations.  The  Obligations  of the  Guarantor  hereunder:  (a)  shall not be
extinguished as a result of any change in the existence,  structure or ownership
of the Merger Sub or either Cinergy Party; (b) shall continue to be effective or
be reinstated,  as the case may be, if, at any time, any of the Merger Subs's or
Cinergy Parties' payments must be restored or returned by the  Counterparties to
the Merger Sub or either  Cinergy  Party or its  successors  or to a  custodian,
receiver or a trustee in bankruptcy as a result of any insolvency, bankruptcy as
a  result  of  any  insolvency,  bankruptcy,  reorganization  or  other  similar
proceeding  affecting the Merger Sub or either Cinergy Party or its assets;  and
(c) shall not be  extinguished  by any  assignment  by the  Merger Sub or either
Cinergy  Party of any  Agreements  to an  Affiliate  of the Merger Sub or either
Cinergy Party.

The  obligations  of  the  Guarantor  hereunder  shall  not  be  subject  to any
counterclaim,  setoff,  deduction or defense based upon any claim the Guarantor,
the Merger Sub, or the Cinergy  Parties may have against the  Counterparties  or
any of their affiliates,  except for those arising under the Merger Agreement or
the Agreements,  and shall remain in full force and effect until all Obligations
of the Merger Sub, and the Cinergy Parties have been performed in full,  without
regard to, and shall not be released,  discharged or in any way affected by, any
circumstance  or condition,  except as set forth herein.  All of the Obligations
shall  conclusively  be deemed to have been  created,  contracted or incurred in
reliance upon this Guaranty.

3.       REPRESENTATIONS AND WARRANTIES OF GUARANTOR

The Guarantor hereby covenants, represents and warrants to the Counterparties as
follows:

a.       The Guarantor is a corporation duly incorporated,  validly existing and
         in good standing under the laws of its  jurisdiction of  incorporation,
         with full  corporate  power to enter into this  Guaranty and to perform
         its obligations hereunder.

b.       The  execution,  delivery  and  performance  by the  Guarantor  of this
         Guaranty are within the corporate  power of the Guarantor and have been
         duly authorized by all necessary corporate action of the Guarantor.

c.       The  execution,  delivery  and  performance  by the  Guarantor  of this
         Guaranty  does not and  will  not  conflict  with or  violate  any law,
         judgment,  order or decree binding on the Guarantor or the  Certificate
         of  Incorporation  or  Bylaws  of  the  Guarantor  or any  contract  or
         agreement to which the Guarantor is a party or by which it is bound.

d.       No  additional  consent  of any  person,  and no notice  to,  filing or
         registration  with,  or  authorization,  consent  or  approval  of, any
         governmental,  regulatory  or  self-regulatory  agency is  necessary or
         required to be made or obtained by the Guarantor in connection with the
         execution  and  delivery  by the  Guarantor  of  this  Guaranty  or the
         performance by the Guarantor of its obligations hereunder.

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<PAGE>

e.       This  Guaranty  constitutes  a  valid  and  binding  obligation  of the
         Guarantor,  enforceable  against the Guarantor in  accordance  with its
         terms.

f.       There   is  no   litigation,   arbitration   proceeding,   governmental
         investigation,  citation  or  action  of any kind  pending  or,  to the
         knowledge  or  the  Guarantor,   proposed  or  threatened  against  the
         Guarantor  or relating to the  business,  assets or  properties  of the
         Guarantor  which,  if  adversely   determined,   would  materially  and
         adversely   affect  the  ability  of  the   Guarantor  to  perform  its
         obligations hereunder.

4.       NOTICES

All notices and other  communications  about this  Guaranty  must be in writing,
must be given by facsimile,  hand delivery or overnight courier service and must
be addressed or directed to the Counterparties at such addresses as indicated on
Exhibit A attached  hereto or other such  address as they shall supply from time
to time to the Guarantor, and to the Guarantor as follows:

         Cinergy  Solutions Holding Company, Inc.
         139 East Fourth Street
         Cincinnati, Ohio  45202
         Attention:  Treasurer
         Tel:  513-287-3852
         Fax:  513-287-2749

         With a copy to:

         Cinergy Corp.

         139 East Fourth Street
         25 Atrium II
         Cincinnati, Ohio  45202
         Attention:  Douglas C. Taylor
         Tel:  513-287-2929
         Fax:  513-287-3810

Notices  are  effective  when  actually  received by the party to which they are
given, as evidenced by facsimile  transmission report, written acknowledgment or
affidavit of hand delivery or courier receipt.

5.       MISCELLANEOUS

This Guaranty shall be governed by and construed in accordance  with the laws of
the State of Ohio without regard to the conflicts of law provisions  thereof. To

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<PAGE>

the  extent  permitted  by  applicable  law,  the  Guarantor  hereby  waives any
provision  of law that  renders any  provision  hereof  invalid,  prohibited  or
unenforceable  in any respect and agrees that if any  provision of this Guaranty
is invalid,  prohibited or unenforceable  in any  jurisdiction  such invalidity,
prohibition or  unenforceability  shall not  invalidate or render  unenforceable
such  provision  in any  other  jurisdiction  and  the  validity,  legality  and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby.

6.       SUCCESSORS AND ASSIGNS

All rights under this Guaranty  shall inure to the benefit of the successors and
assigns of the  Counterparties.  The  Guarantor  may not assign or delegate  its
obligations  hereunder  without  the  express  written  consent  of  each of the
Counterparties.

7.       NO WAIVER OR AMENDMENT

No  failure  to  exercise  and  no  delay  in  exercising,  on the  part  of the
Counterparties,  any right,  power or  privilege  hereunder  shall  operate as a
waiver thereof,  nor shall any single or partial exercise of any right, power or
privilege preclude any other or further exercise thereof, or the exercise of any
other power or right. The rights and remedies herein provided are cumulative and
not  exclusive  or any rights or remedies  provided by law. No provision of this
Guaranty shall be waived, amended or supplemented except by a written instrument
executed by the Guarantorand each of the Counterparties.

8.       ENTIRE AGREEMENT

This  Guaranty is the entire and only  agreement  between the  Guarantor and the
Counterparties  with respect to the guaranty of  Obligations  arising out of the
Merger   Agreement  and  the  Agreements.   All   representations,   warranties,
agreements,  or undertakings heretofore or contemporaneously made, which are not
set forth herein, are superseded hereby.



[THE REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK.]

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<PAGE>


         IN WITNESS  WHEREOF,  the Guarantor has caused this Guaranty to be duly
executed and delivered as of the date first written above.

                               Cinergy Solutions Holding Company, Inc.




                               By: /s/ Lisa D. Gamblin
                               ------------------------

                               Name: Lisa D. Gamblin______________

                               Its:  Treasurer______________________


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<PAGE>



                                                                 EXHIBIT A

                          COUNTERPARTY ADDRESS LISTING


The counterparties to the ESCROW AGREEMENT:

A.  The Zapco Major Shareholders:

Bernard J. Zahren
40 Tower Lane
Avon, CT  06001
Tel:  860.678.7537
Fax:  860.677.6054

Finova Mezzanine Capital Corp.
500 Church Street
Suite 200
Nashville, TN  37219
Attn:  Angela Garcia
Tel:  615.252.4594
Fax:  615.726.1208

AJG Financial Services, Inc.
Gallagher Centre
Two Pierce Place
Itasca, IL  60143-3141
Attn:  Mark P. Strauch
Tel:  630.285.3493
Fax:  630.285.4272

Environmental Opportunities Fund
126 East 56th Street/24th Floor
New York, NY  10022
Tel:  212.752.0064
Fax:  212.419.3950

Environmental Opportunities Fund Cayman
126 East 56th Street/24th Floor
New York, NY  10022
Tel:  212.752.0064
Fax:  212.419.3950

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<PAGE>

Frederic Rose
72 Clare Rose Blvd.
Patchogue, NY 11772
Tel:  631.475.1840
Fax:  631.475.1837

M&R  Associates
72 Clare Rose Blvd.
Patchogue, NY 11772
Tel:  631.475.1840
Fax:  631.475.1837

Martin F. Laughlin
40 Tower Lane
Avon, CT  06001
Tel:  806.678.7537
Fax:  860.677.6054

Richard C. Augustine
40 Tower Lane
Avon, CT  06001
Tel:  806.678.7537
Fax:  860.677.6054

Michael J. Carolan
1400 N. Woodward Avenue
#165
Bloomfield Hills, MI  48304
Tel:  248.647.5363
Fax:  248.647.2291

B:   the Major Shareholder Agent:

A.J.G. Financial Services Co., Inc.
c/o Arthur J. Gallagher & Co.
Gallagher Centre
2 Pierce Place
Itasca, Illinois
Fax:  630-285-3473
Attention:  Vice President and General Counsel

C.   U.S. Energy Systems, Inc.
     One North Lexington Avenue, 4th Floor
     White Plains, New York 10601
     Tel:  914-271-1403
     Fax: 914-271-5315
     Attn:  Goran Mornhed, President and Chief Operating Officer

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<PAGE>

D.   USE Acquisition Corp.
     One North Lexington Avenue, 4th Floor
     White Plains, New York 10601
     Tel:  914-271-1403
     Facsimile No.: 914-271-5315
     Attn:  Goran Mornhed, President and Chief Operating Officer

E.       The Escrow Agent:

     Tannenbaum Helpern Syracuse & Hirschtritt LLP
     900 Third Ave.
     New York, New York, 10022
     Tel:  212-508-6711
     Fax:  212-371-1084

The counterparties to the STOCKHOLDERS' AND VOTING AGREEMENT:

A.       U.S. Energy Systems, Inc.
     (see address under ESCROW AGREEMENT above)

B.       The stockholders of USE who are signatories thereto

Howard A. Nevins
c/o American Enviro-Services, LLC
5700 Prospect Drive
Newburgh, IN  47629
Tel:  812-858-3151
Fax:  812-858-3155

Lawrence I. Schneider
c/o U.S. Energy Systems, Inc.
One North Lexington Avenue, 4th Floor
White Plains, NY  10601
Tel:  212-696-4355 x15
Fax:  212-696-1672

Henry Schneider
c/o U.S. Energy Systems, Inc.
One North Lexington Avenue, 4th Floor
White Plains, NY  10601
Tel:  212-696-4355 x 12
Fax:  212-696-1672

                                       9
<PAGE>

Energy Systems Investors, LLC
c/o Lawrence I. Schneider and Henry Schneider
c/o U.S. Energy Systems, Inc.
One North Lexington Avenue, 4th Floor
White Plains, NY  10601

Castlebridge Partners, LLC
900 West Jackson Blvd., Suite 7E
Chicago, IL  60607
Attn:  Ethan G. Kahn

Marathon Capital, LLC
2101 Waukegan Road
Bannockburn, IL  60015
Attn:  Richard Brandt
Tel:  847-405-0615
Fax:  847-405-0618

C.    The Zapco Major Shareholders
     (See Zapco Major  Shareholders  names and addresses under ESCROW  AGREEMENT
      above.)

The counterparties to the FIRST INDEMNIFICATION AGREEMENT:

A.   Zahren Alternative Power Corporation
     40 Tower Lane
     Avon, CT 06001
     Tel:  860-678-7537
     Fax: 860-677-6054
     Attn: Bernard J. Zahren, President

B.   The Zapco Major Shareholders
     (see names and addresses under ESCROW AGREEMENT above.)

C.   The Zapco Major  Shareholder  Agent (see  address  under  ESCROW  AGREEMENT
     above.)

D.   U.S. Energy Systems, Inc.
     (see address under ESCROW AGREEMENT above.)

E.   USE Acquisition Corp.
     (see address under ESCROW AGREEMENT above.)

                                       10
<PAGE>


The counterparties to the SECOND INDEMNIFICATION AGREEMENT:

A.   U.S. Energy Systems, Inc.
     (see address under ESCROW AGREEMENT above.)

B.   USE Acquisition Corp.
     (see address under ESCROW AGREEMENT above.)

The counterparties to the SUBSCRIPTION AGREEMENT:

A.   U.S. Energy Systems, Inc.
     (see address under ESCROW AGREEMENT above.)

B.   USE Acquisition Corp.
     (see address under ESCROW AGREEMENT above.)

The counterparties to the STOCKHOLDERS AGREEMENT:

A.   USE Acquisition Corp.
     (see address under ESCROW AGREEMENT above.)

B.   U.S. Energy Systems, Inc.
     (see address under ESCROW AGREEMENT above.)

The counterparties of the TERMINATION FEE AGREEMENT:

A.   U.S. Energy Systems, Inc.
     (see address under ESCROW AGREEMENT above.)

B.   Zahren   Alternative   Power   Corporation   (see   address   under   FIRST
     INDEMNIFICATION AGREEMENT.)


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