Green Investing: Clever Plays in Clean Tech

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"That could kick the wind sector back into high growth, but I don't see that coming on line any time in the next two to five years," Uldrich says.

There's also a nascent industry taking shape around a concept called demand response, under which residential and business customers agree to be connected to equipment that reduces their energy consumption at times of peak usage or because of market prices. Companies such as EnerNOC (ENOC) and Comverge (COMV) provide electricity monitoring systems. "The cleanest, most affordable type of energy efficiency is never using energy in the first place, and that's exactly what these companies help utilities to achieve, and consumers," says Uldrich.

"As sensors get more effective and drop in price as a result of advances in the semiconductor business, they will find more opportunities and be able to go into more people's homes with these smart networks," he says. "There's a lot of efficiency still to be squeezed out of the system and both those companies are close to figuring out how to do it."

Multiyear Contracts Make Revenue Predictable

Rob Stone, an analyst at Cowen (COWN) in Boston, advises investors to look at companies such as Comverge as bets that will pay off over the long term, once they have put the up-front expenses of building out an intelligent network for reducing usage in homes and businesses behind them. (Cowen and/or its affiliates received compensation for investment banking services from Comverge in the past 12 months and makes a market in its securities.)

"What [they're] doing is building up a base of assets that will produce long-term recurring revenue and very good cash flow, particularly in the case where they can sign a new contract on an existing fully depreciated network," Stone says.

Even though he doesn't expect Comverge to be profitable until 2009, Stone has an outperform rating on the stock. As the company continues to sign up new customers, it will add on layers of recurring revenue from utilities, which pay according to the number of megawatts under management, he says. And the multiyear contracts it has with utilities ensures that revenue will be fairly predictable year by year.

Congress Expected to Cap Carbon Emissions

Geothermal energy, which is produced by pumping water into volcanic rock, also has a lot of potential for growth, says Uldrich. One big advantage that geothermal power has over solar and wind is that it's considered base load generation that can be relied upon all the time, no matter the weather conditions or time of day. It's also sustainable because the hot water used in the energy-generation process can be reinjected into the ground to produce more steam.

It's highly likely the next Congress will enact some kind of legislation that puts a cap on carbon emissions, which would make geothermal power that much more attractive, as it's a genuinely clean energy source, Uldrich says.

He particularly likes Ormat Technologies (ORA), which develops and operates geothermal and recovered energy-based power plants, and also makes and sells power units and other power-generating equipment. The Nevada-based company has good opportunities, having already leased a great deal of land in Nevada and parts of California, "so they have the right to begin developing geothermal plants on that space."

Calpine (CPN), which emerged from bankruptcy in January, owns the world's largest geothermal power facility, known as the Geysers, in Northern California.

A Large-Scale Update of Old-Tech

Book at FBR predicts that opportunities in environmental retrofitting of old technology to make it more climate-compliant will "be the biggest part of green." He believes it will turn out to be a three-decade, multitrillion-dollar effort that will dwarf the amount of clean technology that gets rolled out.

To keep older power plants firing under a carbon-cap regime will require sequestering carbon, or injecting it into the ground, which is not yet viable or without risk, says Book. That will mean a lot of carbon pipelines and sequestering plants will have to be built.

Ironically, it may turn out that the most lucrative bets for those who want to hitch a ride on the green bandwagon will be in companies with inextricable ties to the fossil fuels industry: pipelines. "The first movers [in building the new facilities] are pipeline companies," says Book. "They're in that business now and they want to be in that business in the future." Besides having already built carbon pipelines for enhanced oil recovery in the Gulf Coast and parts of Alberta, Canada, pipeline master limited partnerships have the added advantage of a favorable tax structure, Book says.

With a little homework, green-focused investors may be able to find some plays that are Earth- and wallet-friendly.

Bogoslaw is a reporter for BusinessWeek's Investing channel.