Can the Renewable Energy Sector Roar Back?

SIOUX FALLS, S.D. -- Alternative energy stocks were battered on Wall Street in 2008 as volatile commodity prices, a continuing global recession and tightening credit markets drove one ethanol company into bankruptcy protection and sent shares of others down more than 90 percent.

Wind and solar companies fared slightly better, but the worldwide economic downturn overshadowed $17 billion in new federal tax incentives that had those industries poised to take off.

"Those are the two ends," said Joseph Muscat, Ernst & Young's Americas director of cleantech and venture capital. "As we end the year, I think right now the challenges in the economy are weighing more heavily than those incentive programs to try to keep the industry moving along at a good pace."

It was a tough year for stocks overall as bad bets on mortgages erupted into a global crisis that seized up credit markets.

While the Dow Jones Total Market Index fell 40 percent and the Standard & Poor's 500 index fell 39 percent, shares of companies like Suntech Power Holdings Co. Ltd. (STP Quote) plummeted 86 percent and First Solar Inc. (FSLR Quote) lost nearly 50 percent of its value.

In wind, which is dominated by companies that trade on foreign exchanges, shares of Denmark's Vestas Wind Systems A/S logged large share-price declines.

One of the hardest hit alternative energy segments was biofuels, as tightening credit markets erased the sector's lifeline to weather volatile corn and fuel price swings.

Near-zero profit margins caused by rapidly rising corn costs and declining ethanol prices helped drive VeraSun Energy Corp., the nation's No. 2 ethanol producer, into Chapter 11 bankruptcy protection. And shares of Aventine Renewable Energy Holdings Inc. (AVR Quote), Pacific Ethanol Inc. (PEIX Quote) and BioFuel Energy Corp. (BIOF Quote) all lost more than 95 percent of their value during 2008.

Oil is trading at low levels not seen in more than four years, prompting naysayers to once again chant "ethanol is dead." That statement couldn't be further from the truth, said Tim Hannagan, a grains analyst at Alaron Trading Corp. in Chicago.