Risks: High

Speculation that demand for alternative energy will soar has made the industry's shares more expensive.

The Bloomberg World Energy-Alternate Sources Index, composed of 27 stocks, jumped 22 percent this year. Companies in the Bloomberg U.S. Energy-Alternative Index are even pricy. Based on forecast earnings, their shares are valued at an average of 60 times. Five of the 12 members of the index reported losses in 2006.

It looks like concerns about rising corn prices and reduced margins also affected the ethanol producers.

"Alternative energy is all the rage,'' said Stuart Schweitzer, New York-based global strategist at JPMorgan Asset Management, which oversees about $1 trillion in assets. That does not mean that as an investor you'll be able to make money.''

Furthermore, some sectors, such as wind parks have been unprofitable, due to the average costs in terms of all wind parks continues to noticeably exceed that of natural gas power plants. This is in part due to the immaturity of renewable energy technologies compared with traditional energy sectors. "In the alternative energy industry, wind power generators have a lot of competition. Dozens of companies are touting new and innovative technology, but there is simply not enough demand to absorb the competition. Until the competition is weeded out, no big profits will be made."  

Investors interested in this sector have to be cautious, since most prices in stocks may be overpriced. However, the true costs to the environment and human health, including acid rain and air pollution, are not reflected in the market price of electricity, according to the associations. There are social benefits in investing in green energy.