Oil prices have plunged below $50, down from $115 a barrel last summer, and could fall as low as $20 a barrel in 2016 as traders process a global supply glut, according to Goldman Sachs analysts. That’s sent alternative-energy investors running for cover: the MAC Solar Index (INDEXCME:SUNIDX), which tracks major solar companies, is down more than 40 percent from its peak in April, while the Guggenheim Solar ETF (NYSEARCA:TAN), which tracks the index, is hovering around a two-year low. Similar slumps have hit a range of other clean-energy stocks and funds, including the S&P Global Clean Energy Index Fund (NASDAQ:ICLN) and the Market Vectors Global Alternative Energy ETF (NYSEARCA:GEX).

The slump in clean-energy stocks reflects the widespread misconception that renewables are oil-dependent, and can only succeed if oil prices climb, analysts say. In fact, according to Environmental Defense Fund analysts Victor Rojas and Paul Stinson, the price of oil doesn’t have any real bearing on the demand for renewable energy. “While it’s true that stocks for some of the more trusted clean energy investments are being dragged down by dipping oil prices, it doesn’t mean demand for clean energy also is suffering,” they write.

The current glut suggests that we’re some distance from “peak oil”, and the resulting bumper payday some renewable energy investors had hoped for. But despite that, the fundamentals of the renewable-energy sector remain remarkably strong: U.S. wind-energy capacity will post double-digits growth through 2016, according to the Energy Information Agency, while solar will account for the majority of new generating capacity through 2022. “You couldn’t kill solar now if you wanted to,” says Jenny Chase, the lead solar analyst with Bloomberg New Energy Finance in London.

Cheap oil isn’t likely to change that, for the simple reason that the fuel is chiefly used in the transportation sector, while renewables are mostly used to generate electricity. Only about 1 percent of America’s oil is used for powering the electrical grid, and globally just 11 countries get a fifth or more of their electricity from oil. That means renewable energy companies are more or less insulated from oil-price fluctuations — even if investors in renewable-energy companies haven’t yet gotten the memo. “The long-term outlook for renewables will only get brighter, despite the price fall” in oil, Citigroup researchers asserted earlier this year.

That’s not to say that low oil prices have no impact whatsoever on the prospect for renewables. In the developing world, people often rely on fuel-oil generators to supplement patchy electricity supplies, so cheap oil could make renewables less appealing. Demand for biofuels, electric vehicles, and other transport-oriented renewable technologies could suffer if oil prices remain low. And with low oil prices historically correlating with low natural gas prices, utilities are investing aggressively in gas-fired generation, which is a serious rival to utility-scale renewables.

There’s also a very real risk that jitters in the renewable energy markets will become a self-fulfilling prophecy, with governments using cheap oil and falling renewable-energy stocks to justify less clean-tech friendly policies. “The risk is primarily a political one,” says financier Ben Warren. “If the government in question doesn’t see renewables as making an affordable contribution to the energy mix over the longer term, then there is a risk subsidies will be reduced or withdrawn.”

The bottom line, though, remains that renewable energy companies have proven remarkably resilient to declining fossil-fuel prices. That’s impressive not least because analysts believe technological developments are likely to make the clean-energy sector more cost-efficient in coming years, according to a Bernstein report. “Renewable energy is a technology. In the technology sector, costs always go down. Fossil fuels are extracted. In extractive industries, costs (almost) always go up,” the report notes. "Renewable and fossil fuel cost per unit of energy are now roughly comparable in many places … but heading in opposite directions.”

That means that for investors with the patience to ride out the current downturn, wind and solar stocks remain attractive plays, both as a hedge against energy-sector volatility and as a potentially under-priced investment. Still, investors will need to hold their nerves as continuing oil-price fluctuations lead other, less steady investors to flee the sector, says Chris Georgandellis of Exchange Capital Management. “Attractive fundamentals are often powerless in the face of the arbitrary preferences of the crowd,” he warns.


Companies to watch

*  Renewable-energy ETFs such as Guggenheim Solar ETF (NYSEARCA:TAN) are a straightforward way to play the sector, but also bring exposure if poorly run companies turn belly-up. Some analysts advise picking your own basket of high-quality companies rather than betting on ETFs.

*  Chinese solar companies such as Yingli Solar (NYSE: YGE) and JinkoSolar (NYSE: JKS) have seen their stocks slide recently, but the conventional wisdom is that the decline is due to the companies’ excessive debt, and to instability in the Chinese economy, rather than to cheap oil. “The sector is in trouble,” says Axiom Capital analyst Gordon Johnson.

*  One sign that cheap oil shouldn’t shake your faith in renewables: Saudi investors recently bought a significant stake in Solexel, an unlisted startup working on high-efficiency PV technologies, as part of an ongoing effort to bolster the Kingdom’s solar resources.


Ben Whitford is the U.S. correspondent for The Ecologist. He has written for the Guardian, Newsweek, Mother Jones, Slate, and many other publications.