I’m generally suspicious of “green” energy investments - mostly because they seem to be political constructs rather than actually good opportunities. To differentiate: a good investment doesn’t require huge subsidies from the government in order to succeed. Right now, there are precious few alternative energy companies that can turn a dime of profit without massive subsidies from governments around the world.

For me, the investment implication of green energy has been to leave it out of my portfolio entirely.

But then yesterday, I received a very good question from reader Bill M. who brought up an interesting idea about actually shorting such companies:

“I have a question for you. Governments are spending a ton of tax dollars supporting all manner of "green" initiatives: wind, solar, ethanol, electric cars, curly-cue light bulbs, green roofs, LEED certifications, housing insulation, etc. etc. Governments have passed all sorts of quotas for renewable energy. All sorts of companies, from start-ups to GE (NYSE: GE), have attracted billions in government dollars and private investment to capitalize on this green wave. How does a cut-throat, uncaring, capitalist monster (like me) make money off what I expect to be the balloon popping on these over-inflated green companies who, when forced to compete on their own without their government sugar daddies, are going to sink like a rock? Are there funds out there making contrarian bets?”

I have to say right out of the gate that I am extremely skeptical of investments in general. That’s the only way to be if you value your investment capital and hope to make it work for you in the markets. Being generous and trusting are good qualities in a boy scout, but not an investor. We need to be skeptical misers.

So when it comes to an industry that’s largely unprofitable, filled with failure, buoyed only by government grants and lots of hopeful talk from environmentalists, I’m wont to be even more skeptical, if that’s possible.

It’s been said before, but it bears repeating: wind and solar only work when it’s windy or sunny. You simply can’t rely on these two technologies as they are and get anything close to the electricity generation that’s required to power today’s infrastructure.

I’m confident that solar power will one day come into viability on a large scale, but there’s still the problem of what to do if the sun doesn’t shine. You hear environmentalists throw around the word “sustainability” a lot. It’s actually kind of humorous, because there’s NOTHING sustainable about getting our electricity generation from ANY of the current green alternatives.

Among the many ill effects of global warming are unusual and violent weather conditions. So there’s some poetic justice in the fact that many forces have combined to create a kind of perfect storm for Canadian Hydro Developers, Inc. (TSX: KDH), one of Canada’s leading renewable energy companies, and an undiluted, pure play on green energy.

The favorable conditions for Canadian Hydro Developers really began to find traction with the run-up in oil prices and electricity shortages following the lashing of New Orleans by Hurricane Katrina. Adding fuel to Canadian Hydro Developers’ fire has been former U.S. vice president Al Gore’s pushing of the global warming issue onto the world stage, along with the focus on the failure of the Kyoto Accord and the release of many books on climate change.

In turn, governments have stepped up support for alternative energy through subsidiaries, grants, and tax credits. Meanwhile, a system for trading emissions credits is rapidly evolving.

And sharing in the spotlight that has been focused in a surprisingly unrelenting way on global warming and the damage caused by fossil-fuel power production are green energy stocks like KHD.

Of course, as with most alternative energy companies, Canadian Hydro Developers comes with all the usual small-cap caveats and then some. Technology advances in fits and starts, and setbacks are inevitable. Government involvement and investment are still fairly integral, yet by definition often fickle and unfocused. And then there’s the long-term – and often delay-prone – nature of utilities.