Eclipse Of The Sun

If alternative-energy companies are so hot, why are their stocks so unpopular? Record-high oil prices make them increasingly competitive. Fear of climate change should brighten their prospects. Yet since 2002 the worldwide stock-market value of companies developing renewable energy--which includes everything from solar to recycling--has fallen from $13 billion to $10.7 billion, while the value of fossil-fuel stocks has surged to highs of more than $1.2 trillion.

The reason is uncertainty. Since the Kyoto Protocol on reducing greenhouse-gas emissions is not yet ratified, the results are piecemeal national rules and on-again, off-again support for alternatives. Until it's clear how much green energy individuals and companies have to use, and by when, the renewables market will continue to suffer, says Mark Campanale, a manager at Henderson Global Investors in London.

Memories of the bubble don't help. Many of these companies acted like dot-coms, burning through cash without turning a profit. The poster child for green hype was Ballard Power Systems--a fuel-cell maker that recently hit $8 a share, down from a 2000 peak of $192. The solar industry suffered, too, from accounting troubles at some companies. The once high-flying U.S. solar-cell company ECD has seen its share price tumble more than 70 percent. "All of these companies tend to track the NASDAQ," says Steve Taub of Cambridge Energy Research Associates in Boston. "When it fell, so did they."

The market is infamous for thinking short term. Meanwhile, multinationals like Sharp, Kyocera, Shell, BP, Sanyo and Mitsubishi are making long-term investments in solar. Sharp earns $1 billion in annual revenue from its solar division. General Electric has turned Enron's old wind-turbine operation into a $1.2 billion-a-year business. Yet the markets aren't rewarding these investments because they are still marginal for big multinationals.

That's not likely to change soon. Several high-profile solar IPOs are being planned for 2005. Q Cells, a German solar-cell company, could be worth as much as $1 billion, says analyst Michael Rogal at CSLA. That's not bad. But Q Cells is only one company, and coal-sector IPOs are more popular as a class. For now, at least, the energy stocks that benefit most from high oil prices are other fossil fuels, not alternatives.