If America is turning to ecologically greener energy sources, a more traditional kind of green — a stream of Wall Street cash — may just fuel the way.

Venture capital and private equity investment are increasingly flowing into alternative energy, the executive director of Pace Law School’s Energy Project, Fred Zalcman, said. He said that Wall Street sees an investment opportunity because of growing concern over climate change as well as increased interest in the search for non-carbon alternatives. One indicator, he said, is that large investment houses are becoming involved.

Wall Street Allure:
The director of the University at Albany’s Energy and Environmental Technology Applications Center, Pradeep Haldar, said that in 2006 alone, more than $2 billion of venture capital was invested in alternative energy in America. “They are starting to pay a lot more attention,” he said.

The president of New York State Energy Research and Development Authority, Paul Tonko, said investment is beginning to flow into every alternative to oil.

“It’s not quite a gold rush, but it’s close,” Seth Rice, a lawyer who specializes in environmental law at the Pittsburgh-based firm of Babst, Calland, Clements and Zomnir, said. He said particularly to the degree one sees climate-change legislation, one would see further investment into alternative energy.

The executive director of the Alliance for Clean Energy New York, Carol Murphy, said that for the first time there was a good connection between the environment, clean energy, and economic development. In the past, she said, the thinking was, “If it’s good for the environment, it can’t be good for business.”

An analyst with New Energy Finance, which tracks investment money in new energy, Ethan Zindler, said solar energy has led in attracting venture capital for research and development. But among technologies closer to commercialization, he said, private equity has tended more toward wind energy.

The chairman of the department of economics at Brooklyn College, Robert Bell, said the economy was presently early in a massive bull market for renewable energy. He believes it will become a bubble much larger than the Internet Dot-com stock bubble of the 1990s. The author of “The Green Bubble: Waste Into Wealth – The New Energy Revolution,” Mr. Bell said that unlike the Internet bubble, the energy bubble will be larger, since more countries like Brazil, India, and China are involved and since energy involves “everything that humans heat, cool, move or build.”

A senior fellow at the Cato Institute, Jerry Taylor, said there has been a tremendous rush of capital into the energy sector. One reason, he said, has been that government mandates consumption regardless of price. Ordering refineries to use a certain amount of ethanol regardless of cost was akin to “Soviet Five- or Ten-Year Plans,” he said, adding that the push for ethanol use was partly an attempt to buy farm votes. He said investment follows where businesses see that government is going to bestow favors.

A senior researcher at the Rand Corporation, James Bartis, said to send the right signals to the marketplace, it is usually best for government to set fairly general requirements but let the market determine the best way to reach the goals. He gave the example of a general cap on carbon emissions, but letting the market decide which technology best meets that goal rather than specifying a particular technology. The key question, though, is how to monitor or enforce compliance, said the director of the Urban Energy Project at Columbia University’s Center for Energy, Marine Transportation and Public Policy, Stephen Hammer.

A professor of physics at New York University, Martin Hoffert, who studies energy, said to mobilize investment in alternative energy, there needs to be a massive change of infrastructure akin to President Eisenhower building the interstate highway system.

Investing in Wind:
Mr. Bell of Brooklyn College said one strong area of business growth is wind energy. Although the percentage of American energy generated by wind remains in the single digits, it is “growing like crazy,” he said. A wind project in Jordanville, N.Y., near Cooperstown, is owned by a subsidiary of the Spanish company Iberdrola. Mr. Bell said the Spanish wind company Gamesa had signed an agreement in Pennsylvania with the United Steelworkers of America, creating work at a time when such unionized jobs have generally declined.

The managing director of BQ Energy, Paul Curran, based in Putnam County, who develops wind energy, said business outlays on wind are a “conservative investment” because there is no risk of exposure to future carbon taxes or changes in fuel costs. Mr. Zindler of New Energy Finance said Goldman Sachs has been an early leader in understanding the value of wind and profited from the sale of Horizon Wind Energy. Mr. Zindler said wind investment in America has gone “from being an area of boutique interest to being very much in the mainstream.”

Mr. Haldar said New York is playing catch up in wind energy, and that Texas and California were ahead in investment and development. According to the American Wind Energy Association, New York is 15th among states with greatest wind energy potential.

Solar Investment:
A senior researcher at the University of Albany’s Atmospheric Sciences Research Center, Richard Perez, said solar energy investment is biggest in California, where the sun shines consistently in many of the inland valleys and in the Southern half of the state. He said there was more interest in solar energy in New Jersey than in New York because the Garden State has larger subsidies and a “net metering” provision allowing companies to receive credit for energy if generating more electricity than they use. New York has net metering for homes but yet not for companies.

Mr. Haldar said solar is still about 20% to 30% more expensive than buying electricity from the ordinary grid except during peak demand hours. But he said in five years or so, solar would become more competitive as costs come down. Mr. Perez said that although the cost per watt is not yet cheap enough for it to be cost-effective for consumers to install solar panels, the technology is steadily becoming more efficient and offering better storage.

Mr. Perez said that New York is potentially one of the best places in the world for “peak shaving,” that is, lowering its energy need through solar. When New York needs power during a hot summer day, solar power is usually readily available, he said, during that 9 a.m. to 5 p.m. period. He predicted that in 10 to 15 years in Manhattan, many more roofs will have “photovoltaic” solar panels.

Biodiesel, Ethanol, Nuclear:
New York businesses are also involved in biodiesel. The chief executive of GS Agrifuels, Thomas Scozzafava, says his company, headquartered at Penn Plaza, sets up biodiesel plants alongside an ethanol plant. In sites like Volney, N.Y., near Syracuse, the biodiesel plant can use excess corn oil from the ethanol plant to make biodiesel fuel.

Mr. Zalcman of Pace Law School is not optimistic about the business prospects of nuclear energy. He said the business climate for new nuclear energy plants is fraught with high market and regulatory risk. He said that a nuclear plant can take a long time to get licensed and built, making it difficult to attract investment capital because of market uncertainty.

What are some of the alternative energy projects that investment banks in New York are investing in? A spokesman for Goldman Sachs, Michael DuVally, told the Sun that Goldman Sachs investments include Iogen Corporation, which develops cellulose ethanol technology, and Suntech, a Chinese company involved in solar technology. New York State is likely to see these and other technologies attracting interest in the coming years.

Tomorrow: What New York City and State are doing about alternative energy.