<PAGE>
 
                                                                   Exhibit 10.57


                        ENVIRONMENTAL POWER CORPORATION

                                1990 STOCK PLAN
                                ---------------


     1.   Purpose.  This 1990 Stock Plan (the "Plan") is intended to provide
          -------                                                           
incentives: (a) to the officers and other employees of Environmental Power
Corporation (the "Company"), its parent (if any) and any present or future
subsidiaries of the Company (collectively, "Related Corporations") by providing
them with opportunities to purchase stock in the Company pursuant to options
granted hereunder which qualify as "incentive stock options" under Section
422A(b) of the Internal Revenue Code of 1986 (the "Code") ("ISO" or "ISOs"); (b)
to directors, officers, employees and consultants of the Company and Related
Corporations by providing them with opportunities to purchase stock in the
Company pursuant to options granted hereunder which do not qualify as ISOs
("Non-Qualified Option" or "Non-Qualified Options"); (c) to directors, officers,
employees and consultants of the Company and Related Corporations by providing
them with awards of stock in the Company ("Awards"); and (d) to directors,
officers, employees and consultants of the Company and Related Corporations by
providing them with opportunities to make direct purchases of stock in the
Company ("Purchases").  Both ISOs and Non-Qualified Options are referred to
hereafter individually as an "Option" and collectively as "Options".  Options,
Awards and authorizations to make Purchases are referred to hereafter
collectively as "Stock Rights".  As used herein, the terms "parent" and
"subsidiary" mean "parent corporation" and "subsidiary corporation",
respectively, as those terms are defined in Section 425 of the Code.


     2.   Administration of the Plan.
          -------------------------- 

          A.   Board or Committee Administration. The Plan shall be administered
               ---------------------------------
     by the Board of Directors of the Company (the "Board"). The Board may
     appoint a Stock Plan Committee (the "Committee") of three or more of its
     members to administer this Plan. If the Committee has been so appointed, no
     member of the Committee, while a member, shall be eligible to participate
     in the Plan. Hereinafter, all references in this Plan to the "Committee"
     shall mean the Board if no Committee has been appointed. Subject to
     ratification of the grant or authorization of each Stock Right by the Board
     (if so required by applicable state law), and subject to the terms of the
     Plan, the Committee shall have the authority to (i) determine the employees
     of the Company and Related Corporations (from among the class of employees
     eligible under paragraph 3 to receive ISOs) to whom ISOs may be
<PAGE>
 
                                     - 2 -

     granted, and to determine (from among the class of individuals and entities
     eligible under paragraph 3 to receive Non-Qualified Options and Awards and
     to make Purchases) to whom Non-Qualified Options, Awards and authorizations
     to make Purchases may be granted; (ii) determine the time or times at which
     Options or Awards may be granted or Purchases made; (iii) determine the
     option price of shares subject to each Option, which price shall not be
     less than the minimum price specified in paragraph 6, and the purchase
     price of shares subject to each Purchase; (iv) determine whether each
     Option granted shall be an ISO or a Non-Qualified Option; (v) determine
     (subject to paragraph 7) the time or times when each Option shall become
     exercisable and the duration of the exercise period; (vi) determine whether
     restrictions such as repurchase options are to be imposed on shares subject
     to Options, Awards and Purchases and the nature of such restrictions, if
     any, and (vii) interpret the Plan and prescribe and rescind rules and
     regulations relating to it. If the Committee determines to issue a Non-
     Qualified Option, it shall take whatever actions it deems necessary, under
     Section 422A of the Code and the regulations promulgated thereunder, to
     ensure that such Option is not treated as an ISO. The interpretation and
     construction by the Committee of any provisions of the Plan or of any Stock
     Right granted under it shall be final unless otherwise determined by the
     Board. The Committee may from time to time adopt such rules and regulations
     for carrying out the Plan as it may deem best. No member of the Board or
     the Committee shall be liable for any action or determination made in good
     faith with respect to the Plan or any Stock Right granted under it.

          B.   Committee Actions. The Committee may select one of its members as
               -----------------
     its chairman, and shall hold meetings at such time and places as it may
     determine. Acts by a majority of the Committee, or acts reduced to or
     approved in writing by a majority of the members of the Committee, shall be
     the valid acts of the Committee. From time to time the Board may increase
     the size of the Committee and appoint additional members thereof, remove
     members (with or without cause) and appoint new members in substitution
     therefor, fill vacancies however caused, or remove all members of the
     Committee and thereafter directly administer the Plan.

          C.   Grant of Stock Rights to Board Members. Stock Rights may be
               --------------------------------------
     granted to members of the Board, but any such grant shall be made and
     approved in accordance with paragraph 2(D), if applicable. All grants of
     Stock Rights to members of the Board shall in all other respects be made in
     accordance with the provisions of this Plan applicable to other eligible
     persons. Members of the Board who are either (i) eligible for Stock Rights
     pursuant to the Plan or (ii) have been granted Stock Rights may vote on any
     matters
<PAGE>
 
                                     - 3 -

     affecting the administration of the Plan or the grant of any Stock Rights
     pursuant to the Plan, except that no such member shall act upon the
     granting to himself of Stock Rights, but any such member may be counted in
     determining the existence of a quorum at any meeting of the Board during
     which action is taken with respect to the granting to him of Stock Rights.

          D.   Compliance with Federal Securities Laws. Any grant of Stock
               ---------------------------------------
     Rights to a member of the Board must be approved by a majority vote of the
     other members of the Board; provided, however, that if a majority of the
     Board is eligible for selection to participate in the Plan or in any other
     stock option or other stock plan of the Company or any of its affiliates,
     or has been so eligible at any time within the preceding year, any grant of
     Stock Rights to a member of the Board must be made by, or only in
     accordance with the recommendation of, the Committee or a committee
     consisting of three or more persons, who may but need not be directors or
     employees of the Company, appointed by the Board but having full authority
     to act in the matter, none of whom is eligible to participate in this Plan
     or any other stock option or other stock plan of the Company or any of its
     affiliates, or has been so eligible at any time within the preceding year.
     The requirements imposed by the preceding sentence shall also apply with
     respect to grants to officers who are not also directors. Once appointed,
     such committee shall continue to serve until otherwise directed by the
     Board.

     3.   Eligible Employees and Others.  ISOs may be granted to any employee of
          -----------------------------                                         
the Company or any Related Corporation.  Those officers and directors of the
Company who are not employees may not be granted ISOs under the Plan.  Non-
Qualified Options, Awards and authorizations to make Purchases may be granted to
any employee, officer or director (whether or not also an employee) or
consultant of the Company or any Related Corporation.  The Committee may take
into consideration a recipient's individual circumstances in determining whether
to grant an ISO, a Non-Qualified Option, an Award or an authorization to make a
Purchase.  Granting of any Stock Right to any individual or entity shall neither
entitle that individual or entity to, nor disqualify him from, participation in
any other grant of Stock Rights.

    4.   Stock.  The stock subject to Options, Awards and Purchases shall be
         -----
authorized but unissued shares of Common Stock of the Company, par value $.0l
per share (the "Common Stock"), or shares of Common Stock reacquired by the
Company in any manner. The aggregate number of shares which may be issued
pursuant to
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                                     - 4 -

the Plan is ____________, subject to adjustment as provided in paragraph 13.
Any such shares may be issued as ISOs, Non-Qualified Options or Awards, or to
persons or entities making Purchases, so long as the number of shares so issued
does not exceed such number, as adjusted. If any Option granted under the Plan
shall expire or terminate for any reason without having been exercised in full
or shall cease for any reason to be exercisable in whole or in part, or if the
Company shall reacquire any unvested shares issued pursuant to Awards or
Purchases, the unpurchased shares subject to such Options and any unvested
shares so reacquired by the Company shall again be available for grants of Stock
Rights under the Plan.

     5.   Granting of Stock Rights.  Stock Rights may be granted under the Plan
          ------------------------                                             
at any time after January ___, 1990 and prior to January ___, 2000.  The date of
grant of a Stock Right under the Plan will be the date specified by the
Committee at the time it grants the Stock Right; provided, however, that such
date shall not be prior to the date on which the Committee acts to approve the
grant.  The Committee shall have the right, with the consent of the optionee, to
convert an ISO granted under the Plan to a Non-Qualified Option pursuant to
paragraph 16.

     6.   Minimum Option Price; ISO Limitations.
          ------------------------------------- 

          A.   Price for Non-Qualified Options.  The exercise price per share
               -------------------------------                               
     specified in the agreement relating to each Non-Qualified Option granted
     under the Plan shall in no event be less than the lesser of (i) the book
     value per share of Common Stock as of the end of the fiscal year of the
     Company immediately preceding the date of such grant, or (ii) fifty percent
     (50%) of the fair market value per share of Common Stock on the date of
     such grant.

          B.   Price for ISOs.  The exercise price per share specified in the
               --------------                                                
     agreement relating to each ISO granted under the Plan shall not be less
     than the fair market value per share of Common Stock on the date of such
     grant. In the case of an ISO to be granted to an employee owning stock
     possessing more than ten percent (10%) of the total combined voting power
     of all classes of stock of the Company or any Related Corporation, the
     price per share specified in the agreement relating to such ISO shall not
     be less than one hundred ten percent (110%) of the fair market value per
     share of Common Stock on the date of grant.

          C.   $100,000 Annual Limitation on ISOs.  Each eligible employee may
               ----------------------------------                
     be granted ISOs only to the extent that, in the aggregate under this Plan
     and all incentive stock option plans of the Company and any Related
     Corporation, such ISOs do not become exercisable for the first time by such
     employee during any calendar year in a manner which would entitle the
     employee to purchase more than $100,000 in fair market value
<PAGE>
 
                                     - 5 -

     (determined at the time the ISOs were granted) of Common Stock in that
     year. Any options granted to an employee in excess of such amount will be
     granted as Non-Qualified Options.

          D.   Determination of Fair Market Value.  If, at the time an Option is
               ----------------------------------                               
     granted under the Plan, the Company's Common Stock is publicly traded,
     "fair market value" shall be determined as of the last business day for
     which the prices or quotes discussed in this sentence are available prior
     to the date such Option is granted and shall mean (i) the average (on that
     date) of the high and low prices of the Common Stock on the principal
     national securities exchange on which the Common stock is traded, if the
     Common Stock is then traded on a national securities exchange; or (ii) the
     last reported sale price (on that date) of the Common Stock on the NASDAQ
     National Market List, if the Common Stock is not then traded on a national
     securities exchange; or (iii) the closing bid price (or average of bid
     prices) last quoted (on that date) by an established quotation service for
     over-the-counter securities, if the Common Stock is not reported on the
     NASDAQ National Market List. However, if the Common Stock is not publicly
     traded at the time an Option is granted under the Plan, "fair market value"
     shall be deemed to be the fair value of the Common Stock as determined by
     the Committee after taking into consideration all factors which it deems
     appropriate, including, without limitation, recent sale and offer prices of
     the Common Stock in private transactions negotiated at arm's length.

     7.   Option Duration.   Subject to earlier termination as provided in
          ------ --------                                                 
paragraphs 9 and 10, each Option shall expire on the date specified by the
Committee, but not more than (i) ten years and one day from the date of grant in
the case of Non-Qualified Options, (ii) ten years from the date of grant in the
case of ISOs generally, and (iii) five years from the date of grant in the case
of ISOs granted to an employee owning stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or any Related Corporation. Subject to earlier termination as provided in
paragraphs 9 and 10, the term of each ISO shall be the term set forth in the
original instrument granting such ISO, except with respect to any part of such
ISO that is converted into a Non-Qualified Option pursuant to paragraph 16.

     8.   Exercise of Option.  Subject to the provisions of paragraphs 9 through
          ------------------                                                    
12, each Option granted under the Plan shall be exercisable as follows:

          A.   Vesting. The Option shall either be fully exercisable on the date
               -------
     of grant or shall become exercisable thereafter in such installments as the
     Committee may specify.
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                                     - 6 -

          B.   Full Vesting of Installments. Once an installment becomes
               ----------------------------
     exercisable it shall remain exercisable until expiration or termination of
     the Option, unless otherwise specified by the Committee.

          C.   Partial Exercise. Each Option or installment may be exercised at
               ----------------
     any time or from time to time, in whole or in part, for up to the total
     number of shares with respect to which it is then exercisable.

          D.   Acceleration of Vesting.  The Committee shall have the right to
               -----------------------                                        
     accelerate the date of exercise of any installment of any Option; provided
     that the Committee shall not, without the consent of an optionee,
     accelerate the exercise date of any installment of any Option granted to
     any employee as an ISO (and not previously converted into a Non-Qualified
     Option pursuant to paragraph 16) if such acceleration would violate the
     annual vesting limitation contained in Section 422A(d) of the Code, as
     described in paragraph 6(C).

     9.   Termination of Employment.  If an ISO optionee ceases to be employed
          -------------------------
by the Company and all Related Corporations other than by reason of death or
disability as defined in paragraph 10, no further installments of his ISOs shall
become exercisable, and his ISOs shall terminate after the passage of ninety
(90) days from the date of termination of his employment, but in no event later
than on their specified expiration dates, except to the extent that such ISOs
(or unexercised installments thereof) have been converted into Non-Qualified
Options pursuant to paragraph 16. Employment shall be considered as continuing
uninterrupted during any bona fide leave of absence (such as those attributable
to illness, military obligations or governmental service) provided that the
period of such leave does not exceed 90 days or, if longer, any period during
which such optionee's right to reemployment is guaranteed by statute. A bona
fide leave of absence with the written approval of the Committee shall not be
considered an interruption of employment under the Plan, provided that such
written approval contractually obligates the Company or any Related Corporation
to continue the employment of the optionee after the approved period of absence.
ISOs granted under the Plan shall not be affected by any change of employment
within or among the Company and Related Corporations, so long as the optionee
continues to be an employee of the Company or any Related Corporation. Nothing
in the Plan shall be deemed to give any grantee of any Stock Right the right to
be retained in employment or other service by the Company or any Related
Corporation for any period of time.

     10.  Death; Disability.
          ----------------- 

          A.   Death. If an ISO optionee ceases to be employed by the Company
               -----
     and all Related Corporations by reason of his
<PAGE>
 
                                     - 7 -

     death, any ISO of his may be exercised, to the extent of the number of
     shares with respect to which he could have exercised it on the date of his
     death, by his estate, personal representative or beneficiary who has
     acquired the ISO by will or by the laws of descent and distribution, at any
     time prior to the earlier of the specified expiration date of the ISO or
     180 days from the date of the optionee's death.

          B.   Disability.  If an ISO optionee ceases to be employed by the
               ----------
     Company and all Related Corporations by reason of his disability, he shall
     have the right to exercise any ISO held by him on the date of termination
     of employment, to the extent of the number of shares with respect to which
     he could have exercised it on that date, at any time prior to the earlier
     of the specified expiration date of the ISO or 180 days from the date of
     the termination of the optionee's employment. For the purposes of the Plan,
     the term "disability" shall mean "permanent and total disability" as
     defined in Section 22(e)(3) of the Code or successor statute.

     11.  Assignability. No Option shall be assignable or transferable by the
          -------------
optionee except by will or by the laws of descent and distribution, and during
the lifetime of the optionee each Option shall be exercisable only by him.


    12.  Terms and Conditions of Options.  Options shall be evidenced by
         -------------------------------                                
instruments (which need not be identical) in such forms as the Committee may
from time to time approve.  Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 11 hereof and may contain such
other provisions as the Committee deems advisable which are not inconsistent
with the Plan, including restrictions applicable to shares of Common Stock
issuable upon exercise of Options.  In granting any Non-Qualified Option, the
Committee may specify that such Non-Qualified Option shall be subject to the
restrictions set forth herein with respect to ISOs, or to such other termination
and cancellation provisions as the Committee may determine.  The Committee may
from time to time confer authority and responsibility on one or more of its own
members and/or one or more officers of the Company to execute and deliver such
instruments.  The proper officers of the Company are authorized and directed to
take any and all action necessary or advisable from time to time to carry out
the terms of such instruments.

     13.  Adjustments.  Upon the occurrence of any of the following events, an
          -----------                                                         
optionee's rights with respect to Options granted to him hereunder shall be
adjusted as hereinafter provided, unless otherwise specifically provided in the
written agreement between the optionee and the Company relating to such
Option:
<PAGE>
 
                                     - 8 -

          A.   Stock Dividends and Stock Splits. If the shares of Common Stock
               --------------------------------
     shall be subdivided or combined into a greater or smaller number of
     shares or if the Company shall issue any shares of Common Stock as a stock
     dividend on its outstanding Common Stock, the number of shares of Common
     Stock deliverable upon the exercise of Options shall be appropriately
     increased or decreased proportionately, and appropriate adjustments shall
     be made in the purchase price per share to reflect such subdivision,
     combination or stock dividend.

          B.   Consolidations or Mergers.  If the Company is to be consolidated
               -------------------------
     with or acquired by another entity in a merger, sale of all or
     substantially all of the Company's assets or otherwise (an "Acquisition"),
     the Committee or the board of directors of any entity assuming the
     obligations of the Company hereunder (the "Successor Board") shall, with
     respect to outstanding Options, take one or more of the following actions:
     (i) make appropriate provision for the continuation of such Options by
     substituting on an equitable basis for the shares then subject to such
     Options the consideration payable with respect to the outstanding shares of
     Common Stock in connection with the Acquisition; (ii) accelerate the date
     of exercise of such Options or of any installment of any such Options;
     (iii) upon written notice to the optionees, provide that all Options must
     be exercised, to the extent then exercisable, within a specified number of
     days of the date of such notice, at the end of which period the Options
     shall terminate; or (iv) terminate all Options in exchange for a cash
     payment equal to the excess of the fair market value of the shares subject
     to such Options (to the extent then exercisable) over the exercise price
     thereof.

          C.   Recapitalization or Reorganization. In the event of a
               ----------------------------------
     recapitalization or reorganization of the Company (other than a transaction
     described in subparagraph B above) pursuant to which securities of the
     Company or of another corporation are issued with respect to the
     outstanding shares of Common Stock, an optionee upon exercising an Option
     shall be entitled to receive for the purchase price paid upon such exercise
     the securities he would have received if he had exercised his Option prior
     to such recapitalization or reorganization.

          D.   Modification of ISOs.  Notwithstanding the foregoing, any
               --------------------
     adjustments made pursuant to subparagraphs A, B or C with respect to ISOs
     shall be made only after the Committee, after consulting with counsel for
     the Company, determines whether such adjustments would constitute a
     "modification" of such ISOs (as that term is defined in Section 425 of the
     Code) or would cause any adverse tax consequences for the holders of such
     ISOs. If the Committee determines that such adjustments made with respect
     to ISOs
<PAGE>
 
                                     - 9 -

     would constitute a modification of such ISOs, it may refrain from making
     such adjustments.

          E.   Dissolution or Liquidation.  In the event of the proposed
               --------------------------
     dissolution or liquidation of the Company, each Option will terminate
     immediately prior to the consummation of such proposed action or at such
     other time and subject to such other conditions as shall be determined by
     the Committee.

          F.   Issuances of Securities.  Except as expressly provided herein, no
               -----------------------                                          
     issuance by the Company of shares of stock of any class, or securities
     convertible into shares of stock of any class, shall affect, and no
     adjustment by reason thereof shall be made with respect to, the number or
     price of shares subject to Options. No adjustments shall be made for
     dividends paid in cash or in property other than securities of the Company.

          G.   Fractional Shares.  No fractional shares shall be issued under
               -----------------
     the Plan and the optionee shall receive from the Company cash in lieu of
     such fractional shares.

          H.   Adjustments.  Upon the happening of any of the foregoing events
               -----------
     described in subparagraphs A, B or C above, the class and aggregate number
     of shares set forth in paragraph 4 hereof that are subject to Stock Rights
     which previously have been or subsequently may be granted under the Plan
     shall also be appropriately adjusted to reflect the events described in
     such subparagraphs. The Committee or the Successor Board shall determine
     the specific adjustments to be made under this paragraph 13 and, subject to
     paragraph 2, its determination shall be conclusive.

If any person or entity owning restricted Common Stock obtained by exercise of a
Stock Right made hereunder receives shares or securities or cash in connection
with a corporate transaction described in subparagraphs A, B or C above as a
result of owning such restricted Common Stock, such shares or securities or cash
shall be subject to all of the conditions and restrictions applicable to the
restricted Common Stock with respect to which such shares or securities or cash
were issued, unless otherwise determined by the Committee or the Successor
Board.

     14.  Means of Exercising Stock Rights.  A Stock Right (or any part or
          --------------------------------                                
installment thereof) shall be exercised by giving written notice to the Company
at its principal office address.  Such notice shall identify the Stock Right
being exercised and specify the number of shares as to which such Stock Right is
being exercised, accompanied by full payment of the purchase price therefor
either (a) in United States dollars in cash or by check, or (b) at the
discretion of the Committee, through delivery of shares of Common Stock having a
fair market value equal as of the
<PAGE>
 
                                     - 10 -

date of the exercise to the cash exercise price of the Stock Right, or (c) at
the discretion of the Committee, by delivery of the grantee's personal recourse
note bearing interest payable not less than annually at no less than l00% of the
lowest applicable Federal rate, as defined in Section 1274(d) of the Code, or
(d) at the discretion of the Committee, by any combination of (a), (b) and (c)
above. If the Committee exercises its discretion to permit payment of the
exercise price of an ISO by means of the methods set forth in clauses (b), (c),
or (d) of the preceding sentence, such discretion shall be exercised in writing
at the time of the grant of the ISO in question. The holder of a Stock Right
shall not have the rights of a shareholder with respect to the shares covered by
his Stock Right until the date of issuance of a stock certificate to him for
such shares. Except as expressly provided above in paragraph 13 with respect to
changes in capitalization and stock dividends, no adjustment shall be made for
dividends or similar rights for which the record date is before the date such
stock certificate is issued.

     15.  Term and Amendment of Plan.  This Plan was adopted by the Board on
          --------------------------                                        
January ___, 1990, subject to approval of the Plan by the stockholders of the
Company at the next Meeting of Stockholders or, in lieu thereof, by written
consent within one year of adoption by the Board.  If the approval of
stockholders is not obtained by January ___, 1991, the Plan will be rescinded.
The Plan shall expire on January ___, 2000 (except as to Options outstanding on
that date).  Subject to the provisions of paragraph 5 above, Stock Rights may be
granted under the Plan prior to the date of stockholder approval of the Plan.
The Board may terminate or amend the Plan in any respect at any time, except
that, without the approval of the stockholders obtained within 12 months before
or after the Board adopts a resolution authorizing any of the following actions:
(a) the total number of shares that may be issued under the Plan may not be
increased (except by adjustment pursuant to paragraph 13); (b) the provisions of
paragraph 3 regarding eligibility for grants of ISOs may not be modified; (c)
the provisions of paragraph 6(B) regarding the exercise price at which shares
may be offered pursuant to ISOs may not be modified (except by adjustment
pursuant to paragraph 13); and (d) the expiration date of the Plan may not be
extended.  Except as otherwise provided in this paragraph 15, in no event may
action of the Board or stockholders alter or impair the rights of a grantee,
without his consent, under any Stock Right previously granted to him.

     16.  Conversion of ISOs into Non-Qualified Options; Termination of ISOs.
          ------------------------------------------------------------------
The Committee, at the written request of any optionee, may in its discretion
take such actions as may be necessary to convert such optionee's ISOs (or any
installments or portions of installments thereof) that have not been exercised
on the date of conversion into Non-Qualified Options at any time
<PAGE>
 
                                     - 11 -

prior to the expiration of such ISOs, regardless of whether the optionee is an
employee of the Company or a Related Corporation at the time of such conversion.
Such actions may include, but not be limited to, extending the exercise period
or reducing the exercise price of the appropriate installments of such Options.
At the time of such conversion, the Committee (with the consent of the Optionee)
may impose such conditions on the exercise of the resulting Non-Qualified
Options as the Committee in its discretion may determine, provided that such
conditions shall not be inconsistent with this Plan.  Nothing in the Plan shall
be deemed to give any optionee the right to have such optionee's ISOs converted
into Non-Qualified Options, and no such conversion shall occur until and unless
the Committee takes appropriate action.  The Committee, with the consent of the
optionee, may also terminate any portion of any ISO that has not been exercised
at the time of such termination.

     17.  Application Of Funds.  The proceeds received by the Company from the
          --------------------                                                
sale of shares pursuant to Options granted and Purchases authorized under the
Plan shall be used for general corporate purposes.

     18.  Governmental Regulation.  The Company's obligation to sell and deliver
          -----------------------                                               
shares of the Common Stock under this Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares.

     19.  Withholding of Additional Income Taxes.  Upon the exercise of a Non-
          --------------------------------------                             
Qualified Option, the grant of an Award, the making of a Purchase of Common
Stock for less than its fair market value, the making of a Disqualifying
Disposition (as defined in paragraph 20) or the vesting of restricted Common
Stock acquired on the exercise of a Stock Right hereunder, the Company, in
accordance with Section 3402(a) of the Code, may require the optionee, Award
recipient or purchaser to pay additional withholding taxes in respect of the
amount that is considered compensation includible in such person's gross income.
The Committee in its discretion may condition (i) the exercise of an Option,
(ii) the grant of an Award, (iii) the making of a Purchase of Common Stock for
less than its fair market value, or (iv) the vesting of restricted Common Stock
acquired by exercising a Stock Right, on the grantee's payment of such
additional withholding taxes.

     20.  Notice to Company of Disqualifying Disposition.  Each employee who
          ----------------------------------------------                    
receives an ISO must agree to notify the Company in writing immediately after
the employee makes a Disqualifying Disposition of any Common Stock acquired
pursuant to the exercise of an ISO.  A Disqualifying Disposition is any
disposition (including any sale) of such Common Stock before the later of (a)
two years after the date the employee was granted the ISO, or (b) one year after
the date the employee acquired Common Stock by
<PAGE>
 
                                     - 12 -

exercising the ISO. If the employee has died before such stock is sold, these
holding period requirements do not apply and no Disqualifying Disposition can
occur thereafter.

     21.  Governing Law; Construction. The validity and construction of the Plan
          ---------------------------
and the instruments evidencing Stock Rights shall be governed by the laws of the
State of Delaware, or the laws of any jurisdiction in which the Company or its
successors in interest may be organized. In construing this Plan, the singular
shall include the plural and the masculine gender shall include the feminine and
neuter, unless the context otherwise requires.
<PAGE>
 
                        ENVIRONMENTAL POWER CORPORATION


                        Incentive Stock Option Agreement
                        --------------------------------


     Environmental Power Corporation, a Delaware corporation (the "Company"),
hereby grants this _____ day of ______________, 1990, to ____________________
(the "Employee"), an option to purchase a maximum of _________ shares of its
Common Stock, $.0l par value, at the price of _______ per share, on the
following terms and conditions:

     1.   Grant Under 1990 Stock Plan. This option is granted pursuant to and is
          ---------------------------
governed by the Company's 1990 Stock Plan (the "Plan") and, unless the context
otherwise requires, terms used herein shall have the same meaning as in the
Plan. Determinations made in connection with this option pursuant to the Plan
shall be governed by the Plan as it exists on this date. This option shall
immediately terminate and be of no force or effect if the Plan is not approved
by the Company's stockholders on or before January __, 1991.

     2.   Grant as Incentive Stock Option; Other Options.  This option is
          ----------------------------------------------                 
intended to qualify as an incentive stock option under Section 422A of the
Internal Revenue Code of 1986 (the "Code"). This option is in addition to any
other options heretofore or hereafter granted to the Employee by the Company,
but a duplicate original of this instrument shall not effect the grant of
another option.

     3.   Extent of Option if Employment Continues.  If the Employee has
          ----------------------------------------                      
continued to be employed by the Company on the following dates, the Employee may
exercise this option for the number of shares set opposite the applicable date:

                    [to be established at the time of grant]

The foregoing rights are cumulative and, while the Employee continues to be 
employed by the Company, may be exercised up to and including the date which is
________ [maximum 10] years from the date this option is granted. All of the
foregoing rights are subject to Articles 4 and 5, as appropriate, if the
Employee ceases to be employed by the Company or dies or becomes disabled while
in the employ of the Company.

     4.   Termination of Employment. If the Employee ceases to be employed by
          -------------------------
the Company, other than by reason of death or disability as defined in Article
5, no further installments of this option shall become exercisable and this
option shall
<PAGE>
 
                                     - 2 -

terminate after the passage of ninety (90) days from the date employment ceases,
but in no event later than the scheduled expiration date. In such a case, the
Employee's only rights hereunder shall be those which are properly exercised
before the termination of this option.

     5.   Death; Disability.  If the Employee dies while in the employ of the
          -----------------                                                  
Company, this option may be exercised, to the extent of the number of shares
with respect to which the Employee could have exercised it on the date of his
death, by his estate, personal representative or beneficiary to whom this option
has been assigned pursuant to Article 10, at any time within 180 days after the
date of death, but not later than the scheduled expiration date.  If the
Employee ceases to be employed by the Company by reason of his disability (as
defined in the Plan), this option may be exercised, to the extent of the number
of shares with respect to which he could have exercised it on the date of the
termination of his employment, at any time within 180 days after such
termination, but not later than the scheduled expiration date.  At the
expiration of such 180-day period or the scheduled expiration date, whichever is
the earlier, this option shall terminate and the only rights hereunder shall be
those as to which the option was properly exercised before such termination.

     6.   Partial Exercise.  Exercise of this option up to the extent above
          ----------------                                                 
stated may be made in part at any time and from time to time within the above
limits, except that this option may not be exercised for a fraction of a share
unless such exercise is with respect to the final installment of stock subject
to this option and a fractional share (or cash in lieu thereof) must be issued
to permit the Employee to exercise completely such final installment.  Any
fractional share with respect to which an installment of this option cannot be
exercised because of the limitation contained in the preceding sentence shall
remain subject to this option and shall be available for later purchase by the
Employee in accordance with the terms hereof.

    7.    Payment of Price. [Person signing on behalf of the Company must
          ----------------
initial one of the three following clauses.] The option price is payable in
        ---
United States dollars and may be paid:

          (a) in cash or by check, or any combination of the foregoing, equal in
amount to the option price.

                                                            __________
                                                            (Initials)

          (b) in cash, by check, by delivery of shares of the Company's Common
Stock having a fair market value (as determined
<PAGE>
 
                                     - 3 -

by the [Board of Directors] [Committee]) equal as of the date of exercise to the
option price, or by any combination of the foregoing, equal in amount to the
option price.
                                                                                
                                                            __________
                                                            (Initials)

          (c) in cash, by check, by delivery of shares of the Company's Common
Stock having an aggregate fair market value (as determined by the [Board of
Directors] [Committee]) equal as of the date of exercise to the option price, by
delivery of the Employee's personal recourse note bearing interest payable not
less than annually at no less than l00% of the lowest applicable Federal rate,
as defined in Section 1274(d) of the Code, or by any combination of the
foregoing, equal in amount to the option price.

                                                            __________
                                                            (Initials)

     Notwithstanding the foregoing, the Employee may not pay any part of the
exercise price hereof by transferring Common Stock to the Company if such Common
Stock is both subject to a substantial risk of forfeiture and not transferable
within the meaning of Section 83 of the Code.

     8.   Agreement to Purchase for Investment.  By acceptance of this option,
          ------------------------------------                                
the Employee agrees that a purchase of shares under this option will not be made
with a view to their distribution, as that term is used in the Securities Act of
1933, as amended, unless in the opinion of counsel to the Company such
distribution is in compliance with or exempt from the registration and
prospectus requirements of that Act, and the Employee agrees to sign a
certificate to such effect at the time of exercising this option and agrees that
the certificate for the shares so purchased may be inscribed with a legend to
ensure compliance with the Securities Act of 1933.

     9.   Method of Exercising Option.  Subject to the terms and conditions of
          ---------------------------                           
this Agreement, this option may be exercised by written notice to the Company,
at the principal executive office of the Company, or to such transfer agent as
the Company shall designate. Such notice shall state the election to exercise
this option and the number of shares in respect of which it is being exercised
and shall be signed by the person or persons so exercising this option. Such
notice shall be accompanied by payment of the full purchase price of such
shares, and the Company shall deliver a certificate or certificates representing
such shares as soon as practicable after the notice shall be received. The
certificate or certificates for the shares as to which this option shall have
been so exercised shall be registered in the name of the person or persons so
exercising this option (or, if this option shall be exercised by the
<PAGE>
 
                                     - 4 -

Employee and if the Employee shall so request in the notice exercising this
option, shall be registered in the name of the Employee and another person
jointly, with right of survivorship) and shall be delivered as provided above to
or upon the written order of the person or persons exercising this option.   In
the event this option shall be exercised, pursuant to Article 5 hereof, by any
person or persons other than the Employee, such notice shall be accompanied by
appropriate proof of the right of such person or persons to exercise this
option.  All shares that shall be purchased upon the exercise of this option as
provided herein shall be fully paid and non-assessable.

     10.  Option Not Transferable. This option is not transferable or assignable
          -----------------------
except by will or by the laws of descent and distribution. During the Employee's
lifetime only the Employee can exercise this option.

     11.  No Obligation to Exercise Option.  The grant and acceptance of this
          --------------------------------                                   
option imposes no obligation on the Employee to exercise it.

     12.  No Obligation to Continue Employment.  The Company and any Related
          ------------------------------------                              
Corporation (as defined in the Plan) are not by the Plan or this option
obligated to continue the Employee in employment.

     13.  No Rights as Stockholder until Exercise.  The Employee shall have no
          ---------------------------------------
rights as a stockholder with respect to shares subject to this Agreement until a
stock certificate therefor has been issued to the Employee and is fully paid
for. Except as is expressly provided in the Plan with respect to certain changes
in the capitalization of the Company, no adjustment shall be made for dividends
or similar rights for which the record date is prior to the date such stock
certificate is issued.

     14. Capital Changes and Business Successions. The Plan contains provisions
         ----------------------------------------
covering the treatment of options in a number of contingencies such as stock
splits and mergers. Provisions in the Plan for adjustment with respect to stock
subject to options and the related provisions with respect to successors to the
business of the Company are hereby made applicable hereunder and are
incorporated herein by reference. In general, you should not assume that options
necessarily would survive the acquisition of the Company. In particular, without
affecting the generality of the foregoing, it is understood that for the
purposes of Articles 3 through 5 hereof, both inclusive, employment by the
Company includes employment by a Related Corporation as defined in the Plan.

     15.  Early Disposition.  The Employee agrees to notify the Company in
          -----------------
writing immediately after the Employee makes a Disqualifying Disposition of any
Common Stock received pursuant to the exercise of this option. A Disqualifying
Disposition is
<PAGE>
 
                                     - 5 -

any disposition (including any sale) of such Common Stock before the later of
                                                                     -----
(a) two years after the date the Employee was granted this option or (b) one
year after the date the Employee acquired Common Stock by exercising this
option.   If the Employee has died before such stock is sold, these holding
period requirements do not apply and no Disqualifying Disposition can occur
thereafter.  The Employee also agrees to provide the Company with any
information which it shall request concerning any such disposition.  The
Employee acknowledges that he or she will forfeit the favorable income tax
treatment otherwise available with respect to the exercise of this incentive
stock option if he or she makes a Disqualifying Disposition of the stock
received on exercise of this option.

     16.  Withholding Taxes. If the Company in its discretion determines that it
          -----------------
is obligated to withhold tax with respect to a Disqualifying Disposition (as
defined in Article 15) of Common Stock received by the Employee on exercise of
this option, the Employee hereby agrees that the Company may withhold from the
Employee's wages the appropriate amount of federal, state and local withholding
taxes attributable to such Disqualifying Disposition. If any portion of this
option is treated as a Non-Qualified Option, the Employee hereby agrees that the
Company may withhold from the Employee's wages the appropriate amount of
federal, state and local withholding taxes attributable to the Employee's
exercise of such Non-Qualified Option. At the Company's discretion, the amount
required to be withheld may be withheld in cash from such wages, or (with
respect to compensation income attributable to the exercise of this option) in
kind from the Common Stock otherwise deliverable to the Optionee on exercise of
this Option. The Employee further agrees that, if the Company does not withhold
an amount from the Employee's wages sufficient to satisfy the Company's
withholding obligation, the Employee will reimburse the Company on demand, in
cash, for the amount underwithheld.

     17.  Provision of Documentation to Employee.  By signing this Agreement the
          --------------------------------------                                
Employee acknowledges receipt of a copy of this Agreement and a copy of the
Company's 1990 Stock Plan.

     18.  Governing Law.  This Agreement shall be governed by and interpreted in
          -------------
accordance with the internal laws of the State of Delaware.
<PAGE>
 
                                     - 6 -

     IN WITNESS WHEREOF the Company and the Employee have caused this instrument
to be executed, and the Employee whose signature appears below acknowledges
receipt of a copy of the Plan and acceptance of an original copy of this
Agreement.

_______________________________         _______________________ Inc.
Employee


_______________________________         By:________________________________
Print Name of Employee


_______________________________                   Title:___________________
Street Address


_______________________________
City           State   Zip Code


NOTE:  PERSON SIGNING ON BEHALF OF THE COMPANY MUST INITIAL ONE OF THE THREE
----                                                        ---             
CLAUSES UNDER ARTICLE 7 ABOVE.
<PAGE>
 
                        ENVIRONMENTAL POWER CORPORATION


                      Non-Qualified Stock Option Agreement
                      ------------------------------------


     Environmental Power Corporation, a Delaware corporation (the "Company"),
hereby grants this ______ day of ________, 1990, to __________________________
(the "Optionee"), an option to purchase a maximum of ________ shares of its
Common Stock, $.01 par value, at the price of ____ per share, on the following
terms and conditions:

     1.   Grant Under 1990 Stock Plan. This option is granted pursuant to and is
          ---------------------------
governed by the Company's 1990 Stock Plan (the "Plan") and, unless the context
otherwise requires, terms used herein shall have the same meaning as in the
Plan. Determinations made in connection with this option pursuant to the Plan
shall be governed by the Plan as it exists on this date. This option shall
immediately terminate and be of no force or effect if the Plan is not approved
by the Company's stockholders on or before January __, 1991.

     2.   Grant as Non-Qualified Option; Other Options. This option shall be
          --------------------------------------------
treated for federal income tax purposes as a Non-Qualified Option (rather than
an incentive stock option), and the Committee will take appropriate action, if
necessary, to achieve this result. This option is in addition to any other
options heretofore or hereafter granted to the Optionee by the Company, but a
duplicate original of this instrument shall not effect the grant of another
option.

     3.   Extent of Option if Business Relationship Continues. If the Optionee
          ---------------------------------------------------
has continued to serve the Company or any Related Corporation in the capacity of
an employee, officer, director or consultant (such service is described herein
as maintaining/or being involved in a "Business Relationship" with the Company)
on the following dates, the Optionee may exercise this option for the number of
shares set opposite the applicable date:

                   [to be established at the time of grant]

The foregoing rights are cumulative and, while the Optionee continues to
maintain a Business Relationship with the Company, may be exercised up to and
including the date which is ____ years from the date this option is granted.
All of the foregoing rights are subject to Articles 4 and 5, as appropriate, if
the Optionee ceases to maintain a Business Relationship with the Company or
dies, becomes disabled or undergoes dissolution while involved in a Business
Relationship with the Company.
<PAGE>
 
                                     - 2 -

     4.   Termination of Business Relationship.  If the Optionee ceases to
          ------------------------------------                            
maintain a Business Relationship with the Company, other than by reason of death
or disability as defined in Article 5, no further installments of this option
shall become exercisable and this option shall terminate after the passage of
sixty (60) days from the date the Business Relationship ceases, but in no event
later than the scheduled expiration date. In such a case, the Optionee's only
rights hereunder shall be those which are properly exercised before the
termination of this option.

     5.   Death; Disability; Dissolution. If the Optionee is a natural person
          ------------------------------
who dies while involved in a Business Relationship with the Company, this option
may be exercised, to the extent of the number of shares with respect to which
the Optionee could have exercised it on the date of his death, by his estate,
personal representative or beneficiary to whom this option has been assigned
pursuant to Article 10, at any time within 180 days after the date of death, but
not later than the scheduled expiration date. If the Optionee is a natural
person whose Business Relationship with the Company is terminated by reason of
his disability (as defined in the Plan), this option may be exercised, to the
extent of the number of shares with respect to which the Optionee could have
exercised it on the date the Business Relationship was terminated, at any time
within 180 days after the date of such termination, but not later than the
scheduled expiration date. At the expiration of such 180-day period or the
scheduled expiration date, whichever is the earlier, this option shall terminate
and the only rights hereunder shall be those as to which the option was properly
exercised before such termination. If the Optionee is a corporation,
partnership, trust or other entity that is dissolved, liquidated, becomes
insolvent or enters into a merger or acquisition with respect to which such
optionee is not the surviving entity at the time when such entity is involved in
a Business Relationship with the Company, this Option shall immediately
terminate as of the date of such event, and the only rights hereunder shall be
those as to which this option was properly exercised before such dissolution or
other event.

     6.   Partial Exercise.  Exercise of this option up to the extent above
          ----------------                                                 
stated may be made in part at any time and from time to time within the above
limits, except that this option may not be exercised for a fraction of a share
unless such exercise is with respect to the final installment of stock subject
to this option and a fractional share (or cash in lieu thereof) must be issued
to permit the Optionee to exercise completely such final installment.  Any
fractional share with respect to which an installment of this option cannot be
exercised because of the limitation contained in the preceding sentence shall
remain subject to this option and shall be available for later purchase by the
Optionee in accordance with the terms hereof.
<PAGE>
 
                                     - 3 -

     7.   Payment of Price. The option price is payable in United States dollars
          ----------------
and may be paid:

          (a) in cash or by check, or any combination of the foregoing, equal in
amount to the option price; or (b) in the discretion of the Committee, in cash,
but check, by delivery of shares of the Company's Common Stock having a fair
market value (as determined by the Committee) equal as of the date of exercise
to the option price, or by any combination of the foregoing, equal in amount to
the option price; or (c) in the discretion of the Committee, in cash, by check,
by delivery of shares of the Company's Common Stock having an aggregate fair
market value (as determined by the Committee) equal as of the date of exercise
to the option price, by delivery of the Optionee's personal recourse note
bearing interest payable not less than annually at no less than l00% of the
lowest applicable Federal rate, as defined in Section 1274(d) of the Code, or by
any combination of the foregoing, equal in amount to the option price.

     If the Optionee delivers Common Stock held by the Optionee (the "Old
Stock") to the Company in full or partial payment of the option price, and the
Old Stock so delivered is subject to restrictions or limitations imposed by
agreement between the Optionee and the Company, the Common Stock received by the
Optionee on the exercise of this option shall be subject to all restrictions and
limitations applicable to the Old Stock to the extent that the Optionee paid for
such Common Stock by delivery of Old Stock, in addition to any restrictions or
limitations imposed by this agreement.

     8.   Agreement to Purchase for Investment.  By acceptance of this option,
          ------------------------------------                                
the Optionee agrees that a purchase of shares under this option will not be made
with a view to their distribution, as that term is used in the Securities Act of
1933, as amended, unless in the opinion of counsel to the Company such
distribution is in compliance with or exempt from the registration and
prospectus requirements of that Act, and the Optionee agrees to sign a
certificate to such effect at the time of exercising this option and agrees that
the certificate for the shares so purchased may be inscribed with a legend to
ensure compliance with that Act.

     9.   Method of Exercising Option.  Subject to the terms and conditions of
          -------------------- ------                                         
this Agreement, this option may be exercised by written notice to the Company,
at the principal executive office of the Company, or to such transfer agent as
the Company shall designate.  Such notice shall state the election to exercise
this option and the number of shares in respect of which it is being exercised
and shall be signed by the person or persons so exercising this option.  Such
notice shall be accompanied by payment of the full purchase price of such
shares, and the Company shall deliver a certificate or certificates representing
such shares as soon as practicable after the notice shall be
<PAGE>
 
                                     - 4 -

received. The certificate or certificates for the shares as to which this option
shall have been so exercised shall be registered in the name of the person or
persons so exercising this option (or, if this option shall be exercised by the
Optionee and if the Optionee shall so request in the notice exercising this
option, shall be registered in the name of the Optionee and another person
jointly, with right of survivorship) and shall be delivered as provided above to
or upon the written order of the person or persons exercising this option. In
the event this option shall be exercised, pursuant to Article 5 hereof, by any
person or persons other than the Optionee, such notice shall be accompanied by
appropriate proof of the right of such person or persons to exercise this
option. All shares that shall be purchased upon the exercise of this option as
provided herein shall be fully paid and non-assessable.

     10.  Option Not Transferable. This option is not transferable or assignable
          -----------------------
except by will or by the laws of descent and distribution. During the Optionee's
lifetime only the Optionee can exercise this option.

     11.  No Obligation to Exercise Option. The grant and acceptance of this
          --------------------------------
option imposes no obligation on the Optionee to exercise it.

     12.  No Obligation to Continue Business Relationship.  The Company and any
          -----------------------------------------------                      
Related Corporations are not by the Plan or this option obligated to continue to
maintain a Business Relationship with the Optionee.

     13.  No Rights as Stockholder until Exercise.  The Optionee shall have no
          ---------------------------------------                             
rights as a stockholder with respect to shares subject to this Agreement until a
stock certificate therefor has been issued to the Optionee and is fully paid
for.  Except as is expressly provided in the Plan with respect to certain
changes in the capitalization of the Company, no adjustment shall be made for
dividends or similar rights for which the record date is prior to the date such
stock certificate is issued.

     14.  Capital Changes and Business Successions. The Plan contains provisions
          ----------------------------------------
covering the treatment of options in a number of contingencies such as stock
splits and mergers. Provisions in the Plan for adjustment with respect to stock
subject to options and the related provisions with respect to successors to the
business of the Company are hereby made applicable hereunder and are
incorporated herein by reference. In general, you should not assume that options
necessarily would survive the acquisition of the Company. In particular, without
affecting the generality of the foregoing, it is understood that for the
purposes of Articles 3 through 5 hereof, both inclusive, employment by the
Company includes employment by a Related Corporation as defined in the Plan.
<PAGE>
 
                                     - 5 -

     15. Withholding Taxes. The Optionee hereby agrees that the Company may
         -----------------
withhold from the Optionee's wages or other remuneration the appropriate amount
of federal, state and local taxes attributable to the Optionee's exercise of any
installment of this option. At the Company's discretion, the amount required to
be withheld may be withheld in cash from such wages or other remuneration, or in
kind from the Common Stock otherwise deliverable to the Optionee on exercise of
this option. The Optionee further agrees that, if the Company does not withhold
an amount from the Optionee's wages or other remuneration sufficient to satisfy
the Company's withholding obligation, the Optionee will reimburse the Company on
demand, in cash, for the amount underwithheld.

     16.  Provision of Documentation to Optionee.  By signing this Agreement the
          --------------------------------------                                
Optionee acknowledges receipt of a copy of this Agreement and a copy of the
Company's 1990 Stock Plan.

     17.  Governing Law.  This Agreement shall be governed by and interpreted in
          -------------
accordance with the internal laws of the State of Delaware.

     IN WITNESS WHEREOF the Company and the Optionee have caused this instrument
to be executed, and the Optionee whose signature appears below acknowledges
receipt of a copy of the Plan and acceptance of an original copy of this
Agreement.

_______________________________           _________________________, Inc.
Optionee


_______________________________           By:____________________________
First Name of Optionee



_______________________________           Title:_________________________
Street Address


_______________________________
City, State, Zip