SUBORDINATION AGREEMENT

Exhibit 10.4

SUBORDINATION AGREEMENT

among

AZ BIOMASS LLC,
a Delaware limited liability company
(Junior Claimant)

and

RENEGY HOLDINGS, INC. ,
a Delaware corporation
(Pledgor)

and

COBANK, ACB
(Administrative Agent and Collateral Agent)

Dated as of January 1, 2009

TABLE OF CONTENTS

          This SUBORDINATION AGREEMENT, dated as of January 1, 2009 (as amended, amended and restated, supplemented or otherwise modified from time to time, this “ Agreement ”), is entered into among AZ BIOMASS LLC, a Delaware limited liability company (“ Junior Claimant ”), RENEGY HOLDINGS, INC., a Delaware corporation (“ Renegy Holdings ”), and COBANK, ACB, as Administrative Agent (together with its successors and assigns in such capacity, “ Administrative Agent ”) and Collateral Agent (together with its successors and assigns in such capacity, “ Collateral Agent ”) for the Senior Claimants (as defined in Section 1.1).

RECITALS

          A. Snowflake White Mountain Power, LLC, an Arizona limited liability company (“ SWMP ”) owns, operates and maintains an approximately 24 MW biomass-fired power generation plant located near Snowflake, Arizona (the “ Project ”).

          B. In connection with the ownership, operation and maintenance of the Project, SWMP has entered into that certain Credit Agreement, dated as of September 1, 2006, as amended and restated on the date hereof (as further amended, amended and restated, supplemented or otherwise modified from time to time, the “ Credit Agreement ”), among SWMP, Renegy, LLC, an Arizona limited liability company (“ Renegy ”), Renegy Trucking, LLC, an Arizona limited liability company (“ Renegy Trucking ” and together with Renegy and SWMP, the “ Borrowers ”), Administrative Agent, Collateral Agent and the financial institutions from time to time parties thereto (collectively, the “ Lenders ”), pursuant to which, among other things, the Lenders have extended Loans to, and for the benefit of, the Borrowers.

          C. As security for the obligations of SWMP under the Credit Agreement, Administrative Agent required that Renegy Holdings pledge its membership interests (and all of its rights, privileges, authority and power thereunder as a member of SWMP) to Collateral Agent pursuant to that certain Pledge Agreement, dated as of October 1, 2007, between Renegy Holdings and Collateral Agent, as amended by that certain First Amendment to Pledge Agreement dated as of the date hereof (the “ Senior Pledge Agreement ”).

          D. Junior Claimant has entered into (i) that certain Member Interest Purchase Agreement, dated as of the date hereof (the “ Purchase Agreement ”), with Renegy Holdings pursuant to which Junior Claimant has purchased all of the Class A membership interests of SWMP (“ Class A Interest ”) and Renegy Holdings has retained ownership of all of the Class B membership interests of SWMP (“ Class B Interest ”) (ii) that certain Amended and Restated Limited Liability Company Agreement of SWMP, dated as of the date hereof (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ LLC Agreement ” and together with the Purchase Agreement, the “ Agreements ”), with Renegy Holdings.

          E. As security for certain obligations of Renegy Holdings under the Agreements, Junior Claimant has required that Renegy Holdings pledge its Class B Interest (and all of its rights, privileges, authority and power thereunder as a member of SWMP) to Junior

Claimant pursuant to that certain Member Interest Pledge Agreement, dated as of the date hereof, between Renegy Holdings and Junior Claimant (the “ Subordinated Pledge Agreement ”).

          F. The Senior Claimants have agreed that Renegy Holdings may enter into the Subordinated Pledge Agreement only if Junior Claimant shall join in this Agreement and Junior Claimant shall subordinate, to the extent and in the manner hereinafter set forth, all claims, rights and remedies in respect of the Subordinated Pledge Agreement to the Senior Pledge Agreement to the extent set forth in this Agreement.

AGREEMENT

          NOW, THEREFORE, in consideration of the promises contained herein, and in order to induce the Lenders to continue to perform under the Credit Agreement and to make the advances of credit contemplated thereby, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I.
DEFINITIONS

          1.1 Agreement Definitions. The following terms when used in this Agreement, including its preamble and recitals, shall have the following meanings:

     “ Proceeding ” means any (a) insolvency, bankruptcy, receivership, liquidation, reorganization, readjustment, composition or other similar proceeding relating to Renegy Holdings, its property or its creditors as such, (b) proceeding for any liquidation, dissolution or other winding-up of Renegy Holdings, voluntary or involuntary, whether or not involving insolvency or bankruptcy proceedings, (c) general assignment for the benefit of creditors of Renegy Holdings or (d) other marshaling of the assets of Renegy Holdings.

     “ Senior Claimants ” means the Secured Parties under and as defined in the Credit Agreement.

     “ Senior Rights ” means all rights, privileges and remedies provided to Collateral Agent under the Senior Pledge Agreement with respect to the Collateral (as defined therein).

     “ Subordinated Rights ” means all rights, privileges and remedies provided to Junior Claimant under the Subordinated Pledge Agreement with respect to the Member Interest (as defined therein).

     “ Subordination Period ” means the period of time commencing on the date of the execution and delivery of this Agreement by each of the parties hereto and ending on the date on which all Senior Claims shall have been paid in full, in cash, all of the Commitments of the Lenders under the Credit Agreement shall have been terminated and all of the Swap Agreements to which any Senior Claimant is a party shall have been terminated.

          1.2 Credit Agreement Definitions . All capitalized terms used herein and not otherwise defined herein shall have the meaning given in the Credit Agreement.

          1.3 Rules of Interpretation . Unless otherwise provided herein, the rules of interpretation set forth in Exhibit A to the Credit Agreement shall apply to this Agreement, including its preamble and recitals.

ARTICLE II.
CERTAIN SUBORDINATION TERMS

          2.1 Subordination . During the Subordination Period, notwithstanding anything in the Agreements or the Subordinated Pledge Agreement to the contrary, each of the parties hereto agree that, to the extent and in the manner provided herein, all security interests, liens and the Subordinated Rights now or hereafter existing in favor of Junior Claimant under the Subordinated Pledge Agreement shall be subject, subordinate and junior in all respects and at all times to the security interests, liens and collection in full of the Senior Rights now or hereafter existing of the Senior Creditors, regardless of the time or order of attachment or perfection of such liens or the time or order of filing of financing statements.

          2.2 Legend . Each negotiable instrument or promissory note evidencing a lien with respect to the Subordinated Rights, if any, in respect thereof shall bear a legend (or otherwise include notice provisions satisfactory to Administrative Agent) providing that the priority of any such lien has been subordinated to the liens with respect to the Senior Rights in the manner and to the extent set forth in this Agreement.

          2.3 Proceeding Against Renegy Holdings; Proof of Claim.

               2.3.1 Proceeding Against Renegy Holdings . At any general meeting of creditors of Renegy Holdings or any member thereof, or in the event of any Proceeding during the Subordination Period, Collateral Agent, on behalf of the Senior Claimants, is hereby irrevocably authorized at any such meeting or in any such Proceeding:

     (a) to enforce claims comprising the Subordinated Rights in the name of Junior Claimant, by proof of debt, proof of claim, suit or otherwise; and

     (b) to collect any payments or distributions of or in respect of the Class B Interest (and all of its rights, privileges, authority and power thereunder as a member of SWMP) as a result of a Proceeding on account of the Subordinated Rights as a result thereof and apply the same, or the proceeds of any realization upon the same that the Senior Claimants in their discretion elect to effect, to the Senior Rights until all Obligations (as defined in the Credit Agreement) shall have been paid in full (the Senior Claimants hereby agreeing to render any surplus as a court of competent jurisdiction may direct); and

     (c) other than voting claims comprising or arising out of the Subordinated Rights in any Proceeding (including the right to vote to accept or reject any plan of partial or complete liquidation or reorganization), to take generally any action in connection

with any such meeting or proceeding which Junior Claimant might otherwise take in respect of the Subordinated Rights and claims relating thereto.

               2.3.2 Proof of Claim. After the commencement of any Proceeding referred to in Section 2.3.1, Junior Claimant may inquire of Collateral Agent in writing whether Collateral Agent, on behalf of Senior Claimants, intends to exercise the foregoing rights with respect to the Subordinated Rights. Should Collateral Agent fail, within a reasonable time after receipt of such inquiry, either to file a proof of claim with respect to the Subordinated Rights and to furnish a copy thereof to Junior Claimant, or to inform Junior Claimant in writing that the Senior Claimants intend to exercise their rights to assert the Subordinated Rights in the manner hereinabove provided, Junior Claimant may, but shall not