If alternative-energy companies are so hot, why are their stocks so unpopular? Record-high oil prices make wind and solar increasingly competitive. Fear of climate change should brighten prospects for any alternative to fossil fuels, which release the greenhouse gases that cause global warming. Yet over the past two years, the worldwide stock-market value of companies developing renewable energy—which includes everything from wind and solar to recycling—fell from $13 billion to $10.7 billion, while the value of fossil-fuel companies surged to record highs of more than $1.2 trillion.

The reason, in a word, is uncertainty. Despite all the clamor about climate change, governments around the world have yet to ratify the Kyoto Protocol on reducing greenhouse-gas emissions. The result is piecemeal national rules and on-again, off-again support for subsidizing alternatives. Until it’s clear how much green energy individuals and companies have to use, and by when, the renewables market will continue to suffer, says Mark Campanale, a manager at Henderson Global Investors in London: “There’s simply not a feeling of certainty in the market about renewable energy.”

Memories of the bubble don’t help. In the late 1990s many of these companies rose and fell like dot-coms, burning through cash without turning a profit. The poster child for green hype was Ballard Power Systems—a fuel-cell maker that was trading recently at $8, down from a 2000 peak of $192. Wind power suffered from tight margins, thanks to high RD costs and a limited number of equipment manufacturers. The solar industry suffered, too, from high cash burn and accounting troubles at some companies. The once high-flying U.S. solar-cell company ECD has seen its share price tumble more than 70 percent, and a competitor, Delaware-based AstroPower, filed for bankruptcy in February. “All of these companies tend to track the NASDAQ,” says Steve Taub, head of renewables for Cambridge Energy Research Associates in Boston. “When it fell, so did they.”

The market is infamous for thinking short term. Meanwhile, multinationals like Sharp, Kyocera, Shell, BP, Sanyo and Mitsubishi are making long-term investments in solar. Sharp earns $1 billion in annual revenue from its solar division. General Electric has turned Enron’s old wind-turbine operation into a $1.2 billion-a-year business. Yet the markets aren’t rewarding these investments, says Campanale, in part because the operations are still “very much on the margins” for large multinationals.

That’s not likely to change soon. Several high-profile solar IPOs are being planned for 2005. Q Cells, a German solar-cell company, could be worth as much as $1 billion, says analyst Michael Rogal at CSLA. That’s not bad. But Q Cells is only one company, and the solar sector as a whole is still lagging. For now, at least, the energy stocks that benefit most from high oil prices are other fossil fuels, not alternatives.