With the tremendous interest in all things "green" and "clean," it was just a matter of time before ETF and index companies would start to carve out thinner slices of the clean tech universe. In fact, there are two ETFs in registration that target a fast-growing segment of the clean tech market: solar energy.

This month, Claymore and Van Eck registered solar energy ETFs. Claymore's Global Solar Energy ETF will track an index developed by Chicago-based Melvin & Company. The index will be composed of approximately 25 stocks selected "based on the relative importance of solar power within the company's business model." The stocks in the index are involved in some aspect of the solar power business, from gathering raw materials to manufacturing equipment to selling solar energy. Components will be weighted based in part on the importance of solar energy to their business model, so that pure-play companies get more weight than conglomerates that dabble in solar energy.

Van Eck's Market Vectors-Solar Energy ETF will track the Ardour Solar Energy Index. Expected to launch in April 2008, the ETF will contain approximately 25 stocks, selected depending on the companies' revenues, liquidity and market cap. The list of companies isn't available, but the roughly 25 stocks will be taken from Ardour's Global Composite Index, an alternative energy index comprised of 118 stocks. Both ETFs will likely have familiar names, such as major solar energy companies like First Solar (NASDAQ: FSLR), Sun Power (NASDAQ: SPWR), Evergreen Solar (NASDAQ: ESLR) and LDK Solar (NYSE: LDK).

Bullish On Solar 

Van Eck and Claymore are counting on solar to generate strong investor interest in the coming years, and for good reason. There seems little doubt that the solar-power industry has a "sunny" future. In January's Scientific American, "A Solar Grand Plan" proposes a way for the U.S. to generate 69% of its electricity and 35% of its total energy from solar power by 2050. Noted technologist and inventor Ray Kurzweil is even more bullish, forecasting that solar will meet 100% of our energy needs in 20 years. Solar currently generates far less than 1% of our energy needs.

Investor interest in solar is strong. Venture capital investment in the industry grew from $150 million in 2005 to more than $1 billion in 2007, according to Greentech Media Research. More money may also come from the government. A bill currently before the Senate could shift about $18 billion of subsidies for oil companies into wind and solar energy. The bill, approved by the House of Representatives, would extend the 30% investment tax credit for solar projects.

That's the bullish case. The near-term outlook is a bit cloudier for solar companies. Industry fundamentals are increasingly difficult. At issue is the worldwide shortage of polysilicon, a vital ingredient in photovoltaic cells, which has hounded the industry by pushing spot prices of the material sky-high. A turning point will come when capacity exceeds demand, as polysilicon makers have been ramping up production. In a recent report, Citigroup says that could happen as early as the second half of 2009: Citigroup analysts expect the industry to be 33% oversupplied in 2010. Another dark cloud for solar is slowing demand in Spain and Germany, both considered key markets because of government incentives that have sped solar development.

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