Energy stocks for the conscience-driven

On the plus side, big business has acquired a stake in renewable energy. Agribusiness giants ConAgra and Archer Daniels Midland have developed ethanol- production systems. British Petroleum (BP) has begun financing hydrogen research. Earlier this year, General Electric became the world leader in solar technology when it took over AstroPower in April.

That's enough for some investors. After years of wanting to invest in renewable power but rejecting every company as either too financially volatile or too socially irresponsible, Pax World Funds in July bought shares in BP.

"BP understands oil is limited; the end is in sight, and they want to stay in business," says Anita Green, Pax's director of social research. "We've seen a demonstrated commitment to invest in sustainable energy."

Not all ethically minded investors agree. Portfolio 21, a five-year-old fund based in Oregon, owns stock in five renewable energy companies but steers clear of major firms still committed to fossil fuels.

"That is something investors struggle with," says Doug Wheat, director of SRI World Group, an information clearinghouse for ethical investing. "The leaders are often the large conglomerates, where alternative energy is just a tiny fraction of what they do.... It puts socially responsible investors potentially at odds with themselves."

Of course, investors can fund the underdogs - small companies developing the next big thing in alternative energy. But they might need stomachs of steel.

Consider the experience of Portfolio 21. Share prices of two of its five alternative energy stocks, including Vancouver-based Ballard Power Systems, which enjoys coveted contracts with major automobile manufacturers, have sunk 45 percent this year. The other three have seen their shares slip between 7.5 and 30 percent. The fund has outperformed the S&P 500 in prior years, thanks only to the buoyancy of other sectors among its holdings. "It's pretty dismal," says cofounder Carsten Henningsen. "The stocks are companies that are immature, volatile, and therefore risky. But we look for companies that show promise for the long-term."

With companies prone to rise or fall sometimes 20 percent in one day, investors shouldn't make alternative energy more than 5 percent of their portfolios, cautions Robert Wilder, whose WilderHill Clean Energy Index became the first to chart the sector's activity when it debuted Aug. 18 on the American Stock Exchange. "If you had invested in computers in the early 1970s, you'd have seen the same thing. To me, it should be that way."

For the really brave, there's hydrogen. Though much of the research occurs at universities and private firms, some potential winners are selling pieces of their business on Wall Street. Datta likes those who make stationary hydrogen-power systems, since their know-how may prove valuable for future transportation. Two good bets for long-term success, he says, are Plug Power and Fuel Cell Energy.

But the landscape remains a guessing game. Until the picture clears, investing in alternative energy could mean not just identifying the best ideas, but also the companies with the longevity to see them through.

"There are going to be a lot of people sitting around in 10 years ... saying, 'I had the technology. I just couldn't get the cash,' " Datta says. "What's important now is to be setting yourself up for being in business when the big prize comes."

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