With BP stock falling to a 14-year low and the Gulf Coast facing years of oil-pollution problems, is the time right for clean energy or alternative energy investments?

Thanks to exchange-traded funds, investors can easily become shareholders in the clean energy industry.  There are a multitude of choices, but they fall into four categories: wind, solar, nuclear, and broad alternative energy.

Unfortunately, the BP disaster has not had a significantly favorable impact on clean energy stocks and ETFs. The First Trust Global Wind Energy Index ETF or FAN has declined 11% in the past 30 days (through 6/9/2010), while the Claymore/MAC Global Solar Energy Index ETF or TAN has dropped -14%.

These results are frustrating to investors who observe that alternative energy continues to grow.  For example, wind energy accounts for double-digit energy output in areas of Central and Western Europe, while China invested $34.6 billion in clean energy in 2009 and the U.S. invested $18.6 billion.

However, other factors continue to dominate the industry.  Concerns about worldwide economic growth are primarily responsible for recent price declines.  In addition, high levels of government debt in many European countries suggest government subsidies will be cut for these still nascent industries. Although venture capital is providing more dollars, solar power development, in particular, is capital intensive and European government subsidies have been vital. Such subsidies help incentivize the private sector to fund development without the fears of excessive risk.

Of course, the oil industry is heavily subsidized, too, and a final irony is that the price of oil itself has an enormous impact on clean energy stocks.  When oil prices approached the psychologically critical $100 per barrel, clean energy development benefited.  Now that oil has fallen to about $75 per barrel, demand for alternative energy sources have also declined. Falling natural gas prices have also made new green energy production less economical.

In essence, clean energy stocks or exchange traded funds are really just commodity investments. As a result, these are extremely volatile investments, highly subject to supply and demand issues. When energy is in high demand, then the clean energy industry stands to gain.