A portfolio of green power-generation stocks held since January 2004 has outperformed the FT 100 Index by a factor of 10 times, according to John Westwood, managing director of energy-research firm Douglas-Westwood Ltd.

"While the FT 100 Index has risen 45%, 23 stocks as measured by the Jefferies Global Clean Technology Energy Generation Index have seen a gain of 451%," he says. The Jefferies index tracks stock performances of companies that generate more than 50% of sales from solar and wind technologies.

Why all the investor interest in renewable energy, and is it well-founded? Addressing delegates at the All-Energy Conference in Aberdeen recently, Westwood acknowledged a number of drivers, but at the same time voiced some concerns.

"It is necessary to understand what is driving investor interest and the potential for significant volatility in stock prices. At present a lot of homeless money is chasing relatively few investment opportunities."

A long-term view is needed, Westwood said, because in the past some essential government financial support to the sector has been switched off.

In recent times the opposite has occurred. Re-instatement of U.S. wind-power subsidies has caused a boom for both U.S. and European wind-turbine suppliers. But the downside has been demand-driven turbine price increases of up to 50%-and delivery backlogs are now affecting wind-farm economics.

"All energy sources benefit from some form of government subsidy."

Government incentives aimed at reducing carbon emissions have, in a number of countries, provided a boost to renewable power generation, said Westwood. In the U.K., the trading of renewable obligation certificates has formed an additional revenue stream for green power generators. However, accelerating capital costs for renewable energy installations are cause for concern.

"We are seeing a fundamental change in the global energy balance. For decades, the Western energy majors have been all-powerful, but their share of oil reserves is declining to the point where they hold perhaps 5%, while the state-owned national oil companies now hold more than 75%."

Westwood says the majors need new strategies. A case in point is BP's 'beyond petroleum' approach to its future. In July 2006, BP acquired a five-year share option for a 10% equity interest in Clipper Windpower at 3.77 British pounds per share. Since then, the stock has risen to 8.83 pounds.

Shell Renewables was established in 1997 and continues to invest in wind and thin-film solar power. Shell is already one of the largest wind-power developers, having a 350-megawatt share of projects totaling 750 megawatts of capacity.

"There has been a surge of U.S. companies, including Wal-Mart and IBM, announcing plans to cut greenhouse gasses. Citigroup, the world's largest financial-services group, has committed to providing $50 billion to environmental projects. Bank of America earmarked $20 billion for environmentally sustainable businesses," he says.

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