Higher oil and gas prices, fears about energy security and political initiatives to reduce carbon dioxide emissions have boosted investment in the renewable energy sector, as research from Norwich Union reveals.

One of the highlights, the team that manages Norwich Union’s Sustainable Future funds points out, is wind energy. Onshore wind is now competitive with gas-generated electricity, and fears about security of supply, reduced CO2 emissions and low input costs have driven the sector, which grew 45% in 2005, with 31% pa growth since 2000.

Another popular area for investment is fuel cells, which convert hydrogen, natural gas or alcohol into electricity and heat. Norwich Union states that $3.7 billion has been allocated in the US to fuel cell research over the next 10 years and US demand is estimated to reach $1.1 billion by 2008. However, few companies make money from fuel cells and it is difficult for investors to appraise the technology, Norwich Union said.

We believe the renewable energy market will grow faster than the market in general over the next 20 years as governments try to increase security of supply and reduce the environmental impacts of power generation, commented Peter Michaelis, manager of the Norwich Union UK Ethical fund and Norwich Union Sustainable Future UK Growth fund.

Investors should remember that renewable stocks are highly volatile and should be part of a diversified portfolio. At times all the good news is priced into the market and stocks can trade at inflated valuations, he continued.

Norwich Union’s Sustainable Future funds are managed by Morley Fund Management.