Turn On Alternative Energy

I don't have the space here to examine the details of each investment choice.

But I'll help by breaking the sector into subgroups and making a few comments about each. Like any investment, you must do your homework.

The major subgroups:

• Ethanol

  The booming ethanol market is the easiest to understand and has the most mature businesses. Some, such as giant Archer Daniels Midland (ADM Quote), are poised to branch into biofuels and other biomass recovery. It's a commodity business, so stick to those with size and scale, such as Pacific Ethanol (PEIX Quote) and VeraSun (VSE Quote).

• Fuel cells

  Fuel cells convert hydrogen to electricity through a complicated process used mostly in stationary plants to support buildings. The technology is promising but is still in the venture stage. Ballard Power (BLDP Quote), Distributed Energy Systems (DESC Quote), Fuelcell Energy (FCEL Quote) and Plug Power (PLUG Quote) are all plays, but none have arrived as proven businesses.

• Solar energy

  I like solar a lot, but it hasn't reached the mainstream. When I can buy inexpensive plug-and-play solar equipment at Home Depot, we'll be there. Plays in this sector include Energy Conversion Devices (ENER Quote), Evergreen Solar (ESLR Quote) and SunPower (SPWR Quote). Again, none are mature, but Energy Conversion Devices has been around for a while and shows some promise, having ventures in hybrid automotive technology as well.

• Geothermal

  I see this as a geographically limited niche, but there is one strong player: Ormat Technologies (ORA Quote) is a large and fairly profitable supplier to geothermal plants with some international play.

• Methane

  Here's an intriguing one -- converting manure and other agricultural waste to methane, the principal component of natural gas. Environmental Power (EPG Quote) has a lead in this fragrant market.

• Wind power

  Big in this field is General Electric (GE Quote), but it's hardly a pure play. Smaller is Zoltek (ZOLT Quote), a manufacturer of the carbon fiber blades used in windmills and wind turbines (but also not a particularly pure play).

Given the technical complexity and immaturity of this sector, you may prefer a fund. There are two conventional mutual funds and an exchange-traded fund available.

While these choices have high fees, sufficient value may lie in diversification and professional expertise deployed to build the portfolio -- fund managers have access to company managers and scientists.

• Mutual Funds: The two choices, the (NALFX Quote)New Alternatives Fund (NALFX) and the (GAAEX Quote)Guinness Atkinson Alternative Energy Fund (GAAEX), are not exactly household names. Costs are high -- the New Alternatives Fund has a 1.28% management fee and a 4.75% upfront load -- so a long-term commitment is required.
• ETF: The Powershares WilderHill Clean Energy ETF (PBW Quote) may be the quickest, cheapest and "cleanest" way to play the sector. PBW follows the WilderHill Clean Energy Index, a broad basket of individual stocks, with holdings of no more than 5% in any one company. Management fees are 0.71% .

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This sector is a lot like biotech 20 years ago. A lot of question marks will evolve into a few good and very timely investments. It makes sense to play the field but not overcommit to the sector or any one business.

One way or another, getting your foot in the investing door will beat buying windmills or oil wells.