Proponents of alternative energy and the sector’s exchange traded funds (ETFs) were among the few rejoicing at the higher cost of oil. But now that prices are less than half of what they were at their all-time peak, suddenly the industry

Evidently the alternative energy sources such as wind and solar are facing challenges as the oil and natural gas prices fall and the credit crunch has tightened the budget for these burgeoning industries. When oil was $147 a barrel, there was major incentive to explore opportunities for different energy sources.

Shares of alternative energy companies have fallen even more sharply than the rest of the stock market in recent months, says Clifford Krause for The New York Times. Investment capital for the bigger renewable energy projects that were getting off the ground may now become scarce.

Advocates are concerned that if the prices for oil and gas keep falling, the incentive for utilities and consumers to buy expensive renewable energy will shrink, similar to the 1980s cycle. The newer technologies are at risk because of the shrinking surplus of capital. Government subsidies will be harder to obtain because of economic problems that are preoccupying Washington now.

Wilderhill Clean Energy (PBW) is down 61.5% year-to-date vs. the S&P 500, which is down 35% in the same timeframe.

Tags: Energy, Green ETFs, Oil, PBW, Sector ETFs