Fears that stocks in clean-energy firms were becoming overvalued were expressed in this column two months ago (see Nature 441, 281; 200610.1038/441281b). Sure enough, they've fallen back to Earth with a bang.

The drop is sharper than the sector would have wanted, and has been driven not just by the earlier hype for clean energy, but also by the broader retreat from risk that characterized May's stock-market correction.

Credit: SOURCE: WILDERSHARES

The WilderHill Clean Energy Index (ECO on the American Stock Exchange) measures the performance of renewable-energy companies listed in the United States — but its fall reflects a global trend.

Michael Liebreich, chief executive of New Energy Finance in London, says that aside from the general market downturn, three factors made stocks tumble in May: profit-taking; bad vibes from the collapse of the European carbon-emissions market (see Nature 441, 405; 2006); and the plain fact that some stocks were overpriced. “A little bit of exuberance has been taken away,” he says, “and most people in the industry are quite pleased about that.”

A series of successful public share offerings — culminating in a billion-dollar haul for Norwegian solar-power company REC on 9 May — had earlier seemed to confirm clean energy's arrival as the next big thing.

Liebreich thinks that subsequent setbacks should serve to remind investors that there are constraints on how fast the industry can grow, such as the numbers of trained engineers, and the size of manufacturing facilities.

“There's a bit of worry that as policy-makers continue to plough in support, the industry will not be able to respond quickly enough,” he says. “There's a limit to the rate of growth, and maybe we're coming up against it.”