Speculating on "Green"

There are a growing number of exchange-traded funds (ETFs) that track various alternative energy indices. This means that rather than risking your money on one particular technology, you can hedge your bets on the performance of the entire index, making you less vulnerable to sudden shifts in the market.

When it comes to specific stocks, Nasdeo sees opportunities in the solar, biodiesel and wind sectors. He also sees cellulosic ethanol as a strong technology for the future. "The information we're getting in now is that if the markets correct themselves we may see some selling off of cellulosic ethanol IPOs (initial public offerings) mid to late next year, which would obviously bring the spotlight back to the biofuel market, and that's a positive," Nasdeo told CNN.

Wind energy has attracted the most investment in recent years and has proved reasonably resilient to the credit crunch.

Solar energy has been the victim of its own success, growing at an annual rate of 254% between 2004 and 2008 according to NEF, creating a mini bubble that was bound to burst.

Solar shares fell some 32% on the NEX in the first quarter of the year and have suffered again in recent weeks, a drop that Prideaux blames on proposals in Germany and Spain to cut generous feed-in tariffs that oblige utilities to buy renewable electricity at above market prices.

However, Prideaux added that "dramatic growth in the solar market is expected in Italy, France and Greece. Also, high profile acquisitions within the solar power value chain by large non-solar buyers -- Germany's Bosch and France's Schneider Electric are key examples -- have bolstered sentiment in [solar] shares."

Solar subsidies in the U.S. are also in doubt. A bipartisan group of 10 senators is currently pushing a compromise deal to renew the U.S. Investment Tax Credit. This would continue a subsidy to renewable energy that currently allows investors in solar projects to claim 30% off their investment tax bill.

The issue, which could be crucial to the development of the solar sector in the U.S., may not be resolved until there is a new administration in the White House.