However, a number of alternative-energy companies will not survive the downturn. This week, Pacific Ethanol's four ethanol-producing subsidiaries filed for bankruptcy, as part of an ongoing shakeout in the ethanol-production business. Two weeks ago, GreenFuel Technologies in Cambridge, MA, which was trying to commercialize algae as a source for biofuels, was shut down by its venture backers. In March, Optisolar, a maker of solar panels that also planned to run solar power plants, began selling off its assets.

And observers caution that companies should not expect immediate relief from the federal stimulus package, which allocates some $60 billion to energy. "The stimulus bill is a one-time opportunity," said Chuck McDermott, general partner of Rockport Capital Partners, speaking on a panel at Venture Summit East this week in Boston. "It's not an ongoing program, it's an event."

Dennis Costello, managing director of Braemar Energy Ventures, a Boston-based venture firm, adds that venture capitalists have to discount the long-term impact of stimulus money. He says it is unclear how the money will be distributed. "Will it go to the best company? The best proposal writer? The ones with the best political connections? It's very unpredictable," he says.

Costello does believe that the Obama administration's emphasis on solving the nation's energy problems has helped keep the energy-investing market from being even worse. But project financing, including securing loans to help build manufacturing facilities, remains challenging, he says. Braemar has portfolio companies that will need project financing in the next two to four quarters, and Costello says that potential lenders are just now "poking their heads up."

Despite the market problems, venture capitalists still seem attracted to green technology and energy, believing they represent a strong market in the long term. Dave Power, a partner at Fidelity Ventures, says his firm is shifting its focus away from information-technology investing and into clean-tech companies, particularly those that improve energy efficiency. "It's a huge market," he says.