Banking on the Wind and the Sun
Oil prices show no signs of easing. That's bad news for consumers, but it creates plenty of opportunity for adventurous investors.
By Jonathan Weber

(Business 2.0) – Back in 1997, when I was a newspaper columnist, I declared, "Solar power is one of those things that's always just around the corner.... I'm here to tell you that widespread use of solar power is just around the corner."

Eight years later, I'll say it again: Widespread use of solar power--and wind power, and, eventually, hydrogen fuel cells--is just around the corner. I'm convinced that oil prices will continue to climb, and that the Bush administration's oil-centric energy policy will give way to something sane within a few years. Along the way, we'll see great opportunities across the alternative-energy spectrum.

The first thing I'd look at in this volatile and speculative arena is a new exchange-traded fund from PowerShares that's based on the WilderHill Clean Energy Index (ticker: PBW). The index, which incorporates fuel-cell, solar, wind, and conservation technology stocks, tends to rise on news about alternative energy and to track not oil prices but the Nasdaq. Accordingly, the fund has gone straight down since its March launch. But I think that spells opportunity.

It's a lot riskier to pick individual stocks. If you're up for something really speculative, you might consider fuel cells. Among the development-stage companies I'd look at are Ballard (BLDP) and Plug Power (PLUG). But this area reminds me of the early days of biotech: The returns are years away, and there'll be a lot more losers than winners. I'd give it a pass unless you're willing to do a lot of homework.

For something a little more here-and-now, check out wind and solar. Wind is becoming a cost-competitive source of electricity, and makers of wind turbines are doing well. The leaders are European companies riding years of government incentives--Vestas Wind Systems (VWS:GR) of Denmark and Gamesa (GAM:SM) of Spain are both good plays, though neither is traded on U.S. exchanges.

Wind-power development in the United States ebbs and flows with a single federal policy: a production tax credit that has to be renewed every year or so. When the credit is on (as it is now), development booms, and when the credit is off (as it was last year), it shuts down. Most observers think it will be extended again this year, and that will be especially good for FPL Group (FPL), the leading U.S. wind farm developer. If you're looking into one of the many private wind developers, be sure to keep two things in mind: Economical wind farms need a really windy location (duh) and a nearby grid infrastructure that can handle the inevitable big surges.

Solar also depends heavily on incentives. But those are happening--keep your eye on California governor Arnold Schwarzenegger's Million Solar Roofs program. The share price of Evergreen Solar (ESLR), the one pure-play in photovoltaic solar panels, has doubled in the past year and may just be starting its run. There's a conglomerate play here too: Sharp (6753:JP) is the leading maker of PV cells, which are really just very large semiconductor chips.

And finally, a word about nuclear. Global warming has melted the hostility with which "green" investors once viewed this technology, but don't be fooled: Nobody wants a nuclear plant in his backyard, waste storage continues to be a problem, and the industry will always be one accident away from oblivion. As a policy matter, I think nuclear is a good alternative to fossil fuels. But as an investor, I'd rather go solar.