Energy stocks for the conscience-driven

You can't ride off into the sunset with a hydrogen-powered SUV - or to a middle-class solar home. But as the decades-long transition away from oil begins to take shape, some ethical investors sense a bonanza.

This year's spike in oil prices has reignited passion for what's been a long-term quest to find stocks that turn not just turbines on the Plains but also profits on Wall Street.

Riding the wave of the future, however, requires keen vision and a strong stomach. Investors who have already jumped into alternative energy have had to make ethical tradeoffs or high-stakes gambles - or both.

"Anytime you look at the situation 20 years out, it's just beginning to take shape," says Kyle Datta, managing director for research and consulting at the Rocky Mountain Institute. "But you're starting to see some of the players making the right moves."

How should you start making the right moves in alternative energy?

For starters, ditch those new-era daydreams. In a few years - or 50 - cars might run on something other than gasoline. But for the moment, the action lies in near-term developments that could ease the transition.

The most visible possibility involves biofuels, particularly ethanol, which is made from the fermentation and distillation of corn and other agricultural feedstocks. Ethanol can mix with petroleum-based gasoline; it now accounts for 5 percent of total gasoline sold in the United States.

That percentage is likely to climb to 13 percent by 2010 and to as much as 30 percent by 2025, according to the Alternative Energy Institute in Tahoe City, Calif. Two major reasons: First, legislative bans on the gasoline additive MBTE are fast creating a market for ethanol as a substitute additive; second, high crude-oil prices could hasten a new gasoline formula with more ethanol and less oil.

"The expansion of the ethanol industry may mean a less arduous transition to the hydrogen economy," says Alternative Energy Institute director Max Martina. Also important to watch: producers of clean-burning and efficient biodiesel, he adds.

Meanwhile, dollars are drifting into hydrogen research. Under President Bush's Hydrogen Fuel Initiative, the Department of Energy plans to distribute $1.2 billion over five years to research clean, cost-effective ways to generate, store, and transport this lightweight fuel. Democratic presidential candidate John Kerry has vowed to commit $5 billion to hydrogen-as- fuel research. For now, an untold sum of cash from angel investors, venture capitalists, and shareholders in a handful of public companies is propelling development of technologies that could in 20 or 30 years be as commonplace as today's refinery or portable gas tank.

But hydrogen fuel-cell engines won't be the norm anytime soon, experts warn. "It's not the fuel cell that gets you to double efficiency in the near term," Mr. Datta says. "It's making the car lighter and stronger that gets you there." Datta expects automakers to keep exploring carbon composites and other lightweight materials.

With these three trends defining the landscape, ethical investors have at least a base of knowledge to guide their decisionmaking. Now the dilemmas begin.

For example: How much sustainability is enough?

Investors can certainly find big, established companies with good potential for seizing new energy opportunities. But will multinational corporations advance your progressive cause - or compromise it?

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