In the U.S., the Energy Policy Act of 2005 created tax credits to support renewable energy sources. They were extended in 2006, but were left out of the 2007 national energy bill because of political wrangling. At press time, Congress was trying to find ways to extend the tax credits. Meanwhile, 26 states have set standards requiring utilities to generate certain percentages of electricity from renewable sources (two other states have voluntary standards).

The beauty of renewable energy sources such as solar and wind is that they're free. The associated costs are tied to the technology required to harness them into usable energy. "This is a high-tech area, and tech costs go down over time," says Rob Wilder, CEO at WilderShares, a developer of green tech indexes. "Solar, wind and geothermal costs are all heading in a direction that's fundamentally different than oil."

Here Comes The Sun

Solar power produces less than 1% of the world's energy, yet it occupies an outsized place in the image of renewable energy in the U.S. partly due to the excitement that surrounded solar stocks in 2007. But solar is poised to play a larger energy role with the continued rollout of photovoltaic (PV) panels that use polysilicon cells to convert sunlight to electricity, and massive projects using concentrating solar power (CSP), a technology that uses arrays of giant mirrors to collect sunlight, which heats water to create steam that powers turbines.

According to the most recent data from www.solarbuzz.com, a Web portal on solar energy, the installation of global photovoltaic solar panels rose 19% in 2006. Germany by far is the largest solar market, followed by Japan. The U.S. itself is a fast-growing solar market where the installed megawatt base leaped 125% in 2007 from the previous year, according to the Solar Energy Industries Association.

Electricity from rooftop PV panels costs less than 22 cents per kilowatt-hour on average, while U.S. residential electricity costs can vary from 6 to 23 cents. PV panels depend on tax credits to be economically feasible, as does CSP, which generally costs about 12 cents per kilowatt-hour. There are several existing CSP projects in the world, and last year the California utility Pacific Gas & Electric announced a 25-year deal to buy solar thermal power from a gigantic nine-square-mile solar park to be built in the Mojave Desert by Solel, a private Israeli company.

But the solar action on Wall Street largely shines on PV panel makers. Leading players include Suntech Power Holdings, Sunpower and First Solar, three stocks with distinct advantages whose prices all soared last year, but then crashed hard in early 2008.

China-based Suntech benefits from production costs that are cheaper than those of most rival makers of silicon-based panels, and stands to cash in from China's environmental cleanup efforts. (It's providing solar power to the main stadium at this summer's Beijing Olympic games.) But the 18% energy efficiency rate of its panels is less than the 22% rate from California-based Sunpower, which Guinness Atkinson Alternative Energy fund co-manager Edward Guinness says is the industry's most energy-efficient solar panel maker. He considers Suntech more of a commodity play, and that's reflected in the company's price-to-earnings multiple on forward earnings (25 times for Suntech's versus 31 times for Sunpower). "There will be room for both," he says, "but in the long run, I favor higher efficiency."

Phoenix-based First Solar is an early leader in PV panels that use thin films of cadmium-telluride semiconductors to make electricity. Thin-film panels are less expensive than silicon-based panels and are more cost-effective for large utility-scale installations; the downside is that they're only about half as energy efficient as silicon panels. But First Solar's low-cost model excited investors so much that the stock skyrocketed more than 1000% from its November 2006 IPO until its all-time high of $283 last December. By early February of 2008, however, it had dropped 38%.

Tilting At Windmills