For Green Energy Investors, a Particularly Tough Ride

In a bad market, the stock prices of many alternative energy firms have been hit even harder

If there is a lesson to be learned from the precipitous fall in “green” stocks last year, it’s this: Combining greed with good intentions can make for a poor investment strategy.

Once among the hottest names on Wall Street, makers of solar panels, wind turbines, and other environmentally friendly gear are in for a difficult year. In 2008, almost every stock in the green space fell harder than the rest of the market during an all-around terrible year for equities. While the S&P 500 index declined by more than a third, several popular green indexes fared worse, slumping between 60 percent and 70 percent. Now, as many of those stocks languish near record lows, alternative energy appears to have stalled. Nervous investors are waiting until money begins to flow from the government’s $787 billion stimulus package. Even when the spigot opens, it’s not clear that a new commitment to renewable energy will be enough to revive the fortunes of an entire industry.

Simply put, problems in the green space go beyond the ongoing recession and the credit crisis. An even bigger drag is overly sunny expectations for sales of wind turbines and solar panels. A bit of history: Earlier in the decade, a mix of generous subsidy plans and easy money sparked a miniboom, fueled by a flood of venture capital and a seemingly unquenchable demand for shares of a small number of publicly traded companies. Between 2004 and 2007, private-sector investments in solar jumped almost 20-fold. As money poured in, output soared