Solar-powered hype, or buying opportunity?

You watched "An Inconvenient Truth." You swore off your beloved Nike Airs back when the company came under fire for running overseas sweatshops. And every time you plunk that half-gallon of organic milk down at the Whole Foods checkout, you feel a little better about the planet.

So what about putting your portfolio where your principles are? That's where "The Meaningful Investor" comes in. As the private sector steps up with powerful, profit-driven solutions for huge world problems, a new and tantalizing possibility is emerging: the chance to do well while your money does some good.

I'm most emphatically not talking about socially responsible investing, which usually boils down to nothing more than avoiding "evil" stocks of tobacco companies and weapons makers, say--and sacrificing returns in the process. Instead, the premise here is that virtue need not be its own reward.

So call this a column about good greed. I'll be searching for investments where profits and the promise of a better world aren't at odds. Because this is an arena in which wishful thinking can trump sound judgment, I'll be taking a hard-nosed approach. Many "green" investments, for example, offer great stories and big ambitions, along with inflated valuations and unproven markets. Sound familiar, Internet investors?

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Solar power is a case in point. There are a dozen or so publicly traded companies that manufacture solar materials or systems. And some big-name billion-dollar investors -- like John Doerr at venture firm Kleiner Perkins Caufield & Byers, or Bill Gross, founder of the infamous Internet incubator Idealab -- are beyond bullish on the sector. Their hyperactive interest is helping to overheat solar stocks. SunPower, for example, a spin-off of Cypress Semiconductor that makes high-efficiency solar-power cells, was recently trading at more than 166 times earnings. Again, sound familiar, Internet investors?

Solar still has one big economic problem: It costs roughly twice as much per kilowatt-hour as power from the grid. But an unusual confluence of events is changing that calculus and making even jaded investors wonder if there isn't something more to solar than hype.

First, of course, are rising petroleum prices. True, they're off their highs, but you'd have to be a Panglossian optimist to look at the Middle East and believe oil and natural gas will really become cheap again. Second, even as traditional energy prices rise, solar costs are expected to continue their descent. The cost of a solar kilowatt-hour has declined from 47 cents in 1990 to around 21 cents today, where it has been stuck for a while.

But all that venture money should start kicking in, helping companies refine their technologies and use fewer costly materials. Lower costs, in turn, will mean the ability to create more capacity. "We're seeing solar produced on a scale that's truly intriguing," says Scott Sklar, president of the green-energy consulting firm Stella Group.

The third force that's changing the dynamics of solar is government subsidies. Uncle Sam now gives a 30 percent tax credit to businesses that use solar energy, and no fewer than 15 states offer hefty incentives of their own. If you're a true free marketeer, this should give you the willies (and remind you, unpleasantly, of the $10 billion spent to subsidize ethanol since 1980). But the hand of government is undeniably squeezing the cost gap between solar and fossil fuels.

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