The credit crisis that began last fall has stalled the growth of the renewable-power industry, with companies scaling back or abandoning plans for new plants, many of which were expected to cost hundreds of millions of dollar to build. But the U.S. government's promise of $6 billion in loan guarantees in the stimulus bill, plus a July release of $3 billion in grants for renewable energy, should help unfreeze projects, say Judy Chang, an economist at the Brattle Group, a consulting firm based in Cambridge, MA.

Besides established energy companies looking to enter or expand their position in the market, the biggest investors in clean-energy projects are private-equity investors, who were responsible for about $13 billion of global investment annually in 2007 and 2008.

Even in good times, however, these firms are wary of investing in previously untried technology. Solar-power companies seeking funding for utility-scale plants have been particularly hard hit. A solar plant that can produce 100 megawatts of power costs $350 million to $450 million to build, says Ethan Zindler, head of North American research at New Energy Finance, a research group headquartered in London. Such an investment is well beyond the budget of most venture capitalists, and these days, private-equity investors are reluctant to participate in such risky investments.

Venture capital investment, which plays a vital role in the initial funding of new technologies, has also retreated. In the United States, VCs invested only $154 million in clean tech in the first quarter of 2009, according to the National Venture Capital Association (NVCA)--the lowest quarterly total in four years. The average in 2008 was $1 billion a quarter. "The largest cause was uncertainty about how long the recession was going to last," says Dennis R. Costello, managing director of Braemar Energy Ventures, a VC firm with offices in Boston and New York. A long recession means that companies already on a VC's books will need more capital just to keep going, he says.

Signs of improvement have appeared in some areas of renewable energy. The NNVCA reports that VCs invested $274 million in clean tech in the second quarter. Much of the money went to electric vehicles, with Silicon Valley car manufacturer Tesla Motors picking up nearly $3 million. Meanwhile, interest in energy efficiency and smart-grid technologies has helped venture-backed companies such as Silicon Valley startup Silver Spring Networks, which is developing networking technology for utilities. Silver Spring Networks recently joined a consortium working on a $200 million smart-grid project in Miami (see "Research to Watch"). Startups like this one, however, will face competition from established companies ranging from meter maker Itron to IBM and Cisco.

Solar power also continues to draw interest from venture investors, garnering 34 percent of clean-technology venture capital in the United States, the European Union, and Israel in the first quarter of 2009, according to Greentech Media of Cambridge, MA. Observers also say that venture capitalists are looking at opportunities in geothermal power and waste-to-power technologies. According to the NVCA, big winners in the second quarter included Ausra, a Silicon Valley solar-power company that won $25.5 million in funding, and New York City-based OwnEnergy, which focuses on wind-power projects and received $20 million.

How venture-backed startups will fare in the energy business over the long term is uncertain, however. Some believe that the high capital costs and conservative business mentality associated with the industry will favor larger companies. Renewable energy, Costello predicts, "will become a big-company game."