Tickers in this Article: TAN, GCTAF, EWG, EWN, FSLR, TAN, FAN, PZD, GRID
It hasn't been a good year for alternative energy investors. As a whole, green investors have lost 3% more than the S&P 500 over the last month. Some subsectors have lost more, with solar energy taking the brunt of the fall. Tied to the oil and gas industry, plunging oil and natural gas prices have made the traditional energy sources cheaper short-term options versus many forms of alternative energy. However, as interesting as alternative energy is as a long play over the short term, investors have a new threat to their portfolios; the end of European subsidies.

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Austerity Plans
Europe has traditionally been a supporter of alternative and renewable energy through programs designed to subsidize the higher costs associated with the power forms. These programs were designed to help green energy compete with conventional oil and coal. However, with the recent trillion dollar bailout of the P.I.I.G. nations, many analysts are worried that this financial assistance will end. Cuts are almost assured for nations such as Spain, and green companies dealing directly with those nations have been punished.

For example, shares of Spanish wind power producer Gamesa (OTCBB:GCTAF) have fallen from a high of $25 to around $10. What really worries investors and analysts is that these austerity measures will spill over to nations like Germany, iShares German Index (NYSE:EWG) or the Netherlands, iShares Netherland Index (NYSE:EWN).

What to Avoid
Over the short to medium term, the solar sector maybe one area to avoid. As one of the main recipients of subsidies from European governments, several companies within the sector have fallen quite hard. Thin film leader, First Solar (Nasdaq:FSLR) has fallen 25% over concerns about its European revenues. Shares of recent IPO Jinko Solar (NYSE:JKS) can be had for less than their initial public price. Adventurous investors could even possibly short the Claymore/MAC Global Solar Energy ETF (NYSE:TAN) which holds 26% of its assets in Germany.

Investors also may want to stay away from the broad based wind exchange-traded funds. The First Trust Global Wind Energy (NYSE:FAN) holds heavy Euro exposure, with Spain accounting for 22% of assets, Germany at 16%, Belgium at 6% and France at 3%.

Possible Additions
Investors wanting to add green energy to a portfolio could add the PowerShares Cleantech (NYSE:PZD) which focuses on several aspects of green technology, not just energy or the First Trust NASDAQ Clean Edge Smart Grid Infrastructure Fund (Nasdaq:GRID) which can be seen as a play on the United States revamping its electrical grid to make it more energy efficient.

The Bottom Line
While alternative energy represents a great play for the long term, Europe's debt woes and austerity plans will certainly have a negative effect on the values of companies in the sector. Investors should avoid the solar and wind sectors for now, until more is known about what budget cuts will need to be made before investing. (For more, see Top 10 Green Industries.)

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