While alternative energy investments appeal to a lot of investors on an emotional and conceptual level, many offer only limited investment potential. That’s because they may need a long time to move from the research or concept stage to profitability.

However, there are renewable energy stocks that already have established businesses, such as hydroelectric power, that cut the risk of their alternative energy investments.

One of those is INNERGEX RENEWABLE ENERGY (Toronto symbol INE; www.innergex.com), which owns and operates 25 hydroelectric and wind power facilities in Quebec, Ontario, B.C. and Idaho.

Innergex gets about 80% of its power from hydroelectric plants. Wind farms supply the remaining 20%.

Wind power is heavily reliant on politically sensitive government subsidies. To cut its risk, Innergex makes sure it has firm long-term power-purchase contracts in place before it makes acquisitions or starts building new plants.

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Renewable energy stocks: Innergex adds more capacity with key acquisition

In April 2011, Innergex bought Cloudworks Energy for $187 million. That added stakes in six operating hydroelectric plants in B.C. and other projects that are still under development. The company aims to keep increasing its hydroelectric and wind power capacity. And it will start up its first solar power facility later this year.

Before one-time items, Innergex’s earnings per share rose to $0.13 in the three months ended September 30, 2011, from $0.05 a year earlier. Cash flow per share rose 33.3%, to $0.32 from $0.24. Cloudworks’ contribution was the main reason for the gains.

Innergex trades at 7.9 times its forecast 2012 cash flow of $1.30 a share. It yields 5.7%.

In the latest issue of Canadian Wealth Advisor, we look at whether Innergex can continue to manage its growth successfully as it develops 10 new hydroelectric and wind power projects as well as its first solar power facility. We conclude with our clear buy-hold-sell advice.

Canadian Wealth Advisor covers safe money investments for turbulent times, primarily ETFs, REITs and well-established dividend-paying stocks. You can get a special risk-free introductory subscription to Canadian Wealth Advisor at a savings of $50.00 off the regular rate. Click here to get started right away.

Wind power relies heavily on politically sensitive government subsidies. However, wind projects represent just a small portion of Emera’s overall operations.

Emera is a buy.

Canadian Solar is building the facilities using its own photovoltaic panels. It expects to finish construction between late 2012 and mid-2013. TransCanada will buy each facility as it starts operating.

In all, these projects will generate 86 megawatts of electricity. To put that in context, TransCanada currently owns or invests in North American power plants that generate a combined 10,800 megawatts.

All nine projects have 20-year contracts to sell their electricity to Ontario’s power regulator. The Ontario government may cut the rates it pays to solar-power producers as it looks to lower its budget deficit. However, solar power represents such a small part of TransCanada’s operations that any cut would have little impact on the company.

TransCanada is still a buy.

Wind farms are uneconomic, but operators profit from subsidies. This project has a 20-year deal to sell its power to Hydro-Quebec.

Enbridge is a buy.

ALGONQUIN POWER & UTILITIES CORP. $5.60 (Toronto symbol AQN; Shares outstanding: 112.8 million; Market cap: $631.7 million; TSINetwork Rating: Extra Risk; Dividend yield: 5.0%; www.algonquinpower.com) holds interests in 45 hydroelectric plants in Canada and the northeastern U.S. It also owns 12 thermal-energy facilities. Algonquin’s wholly owned subsidiary, Liberty Water Co., owns 19 water-distribution and sewage treatment plants in the U.S.

The company also has a partnership with Emera Inc. (Toronto symbol EMA), which is a recommendation of The Successful Investor, our conservative growth advisory. Emera holds a 24.4% interest in Algonquin. This partnership, called Liberty Energy Utilities, continues to make acquisitions.

Liberty Energy’s purchases include NV Energy, which sells power to 47,000 customers near Lake Tahoe; Atmos Energy, which distributes natural gas to 84,000 customers in Missouri, Iowa and Illinois; and two other utilities that sell electricity and natural gas to 130,000 customers in New Hampshire.

Algonquin has also made a number of wind power investments: it owns wind farms in Manitoba and Saskatchewan, and is developing other projects in Ontario and Quebec. As well, Emera and Algonquin are forming a joint venture called Northeast Wind to build wind energy projects in the northeastern U.S.

In the three months ended June 30, 2011, Algonquin earned $0.07 a share, compared to nil per share a year earlier. Cash flow per share rose 41.7%, to $0.17 from $0.12.

Algonquin yields 5.0%, and trades at just 6.5 times its forecast 2011 cash flow of $0.86 a share.

Algonquin Power & Utilities is still a buy.

INNERGEX RENEWABLE ENERGY $9.61 (Toronto symbol INE; Shares outstanding: 80.4 million; Market cap: $772.6 million; TSINetwork Rating: Extra Risk; Dividend yield 6.0%; www.innergex.com) owns and operates 23 hydroelectric and wind power facilities in Quebec, Ontario, B.C. and Idaho.

Innergex gets about 80% of its power from hydroelectric plants. The remaining 20% comes from wind farms.

The company aims to rapidly expand its hydroelectric and wind power capacity. It is now developing or building 11 projects. In addition, Innergex will start up its first solar power project in early 2012.

Before one-time items, earnings per share fell to $0.01 in the quarter ended June 30, 2011, from $0.06 a year earlier. However, cash flow per share rose 5.9%, to $0.28 from $0.22.

Innergex’s shares yield 6.0%. The stock trades at 7.6 times forecast 2011 cash flow of $1.26 a share.

Innergex Renewable Energy is a buy.

Brookfield Renewable now owns interests in 42 hydroelectric generating stations on 16 river systems in Quebec, Ontario, B.C. and New England, as well as two wind farms. It has 1,700 megawatts of generating capacity in total.

The combined entity, which will be called Brookfield Renewable Energy Partners L.P., will own 179 power plants generating 4,800 megawatts of electricity. Roughly 40% of its generating capacity will be in Canada, with another 40% in the U.S. and 20% in Brazil.

We think the merger is positive for Brookfield Renewable unitholders. The new company will raise its distribution from the current $1.30 per unit to $1.35. That will give it a yield of 4.9%, based on today’s price. The move also enhances the company’s growth prospects. The deal should close by the end of 2011.

Brookfield Renewable Power is still a buy.

Pat McKeough responds to many personal questions on stocks and other investment topics from the members of his Inner Circle. Every week, his comments and recommendations on a selection of the most intriguing questions of the past week go out to all Inner Circle members. And every Friday, we offer you one of the highlights from these Q&A sessions.

An interesting question came up this week about Ocean Power Technologies, a company that is generating electricity from ocean waves. This raised the issue of the risks and rewards associated with a renewable energy stock. In particular, Pat drew the comparison between the long-term prospects of wave power and wind power.

Q: What do you think of Ocean Power Technologies? What is the buy/hold/sell status of the stock, please?

A: Ocean Power Technologies (symbol OPTT on Nasdaq; www.oceanpowertechnologies.com) is trying to develop and commercialize a system that generates electricity from the mechanical energy created by the rising and falling of ocean waves. The company began trading on Nasdaq in May 2006 at $1.80 a share (split adjusted).

Founded in 1994, Ocean Power focuses on commercializing its PowerBuoy system, which is able to respond to changing wave conditions. Most of the PowerBuoy is underwater, so it has less visible impact on the surrounding environment than wind turbines. Wave power is also steadier and more consistent than wind power.

In 2004, Ocean Power formed a joint venture with Iberdrola (a major Spanish utility) to build a wave farm on the north coast of Spain. Ocean Power deployed and tested its first PowerBuoy off the coast of Spain in September 2008.

In October 2008, the company deployed one of its PowerBuoy systems near Kaneohe Bay, on the island of Oahu, under its ongoing program with the U.S. Navy. This PowerBuoy will be connected to the Oahu power grid.

Renewable energy stock: Ocean Power adds contract from U.S. Department of Energy

In addition, Ocean Power continues to work under a contract with the Scottish government. As well, Ocean Power recently signed agreements to develop wave power projects off Australia’s eastern and southern coasts.

The company recently won a $2.4-million contract awarded from the U.S. Department of Energy to promote the development of renewable marine energy. To that end, Ocean Power has teamed up with Lockheed Martin to develop wave power projects in North America.

You can see Pat’s recommendation on Ocean Power Technologies in this week’s Inner Circle Q&A. In his analysis, he looks at how soon the company is likely to be commercially viable and generate a profit for shareholders. He also considers whether it can continue to attract government and commercial development contracts.

Inner Circle members see Pat’s analysis and recommendations on the stocks other members have asked about in each week’s Inner Circle Q&A. You can view it immediately when you become a member of this special investment group. You will get Pat McKeough’s answers to your personal investment questions, full access to our members-only Inner Circle section, and many other membership privileges. Click here to get started right away.

(Note: If you are a current member of the Inner Circle, please click here to view Pat’s recommendation. Be sure to log in first.)

Meanwhile, Fortress has been converting the plant to produce a type of cellulose called dissolving pulp, which is mainly used in viscose fibre, or rayon. The conversion should be fully operational shortly. Dissolving pulp prices remain high, and Fortress has already signed contracts with a number of companies in China.

Fortress is also building a 25-megawatt biomass-fuelled cogeneration facility to supply electricity for the Thurso plant.

Biomass facilities burn plant materials and waste. Cogeneration involves recovering heat that is created in the initial generating process and recycling it to produce more electricity.

Fortress’ outlook is positive, and the dissolving pulp plant should make a big contribution to its earnings.

Fortress Paper is still a buy.

However, while alternative energy investments appeal to a lot of investors on an emotional and conceptual level, many offer only limited investment potential. That’s because they may need a long time to move from the research or concept stage to profitability.

In addition, many governments around the world are cutting subsidies for alternative energy investments as they look for ways to deal with their ballooning budget deficits.

To cut your risk, we recommend that you focus on established firms that have a sound base of other operations. That helps cut the risk of their alternative energy investments.

Another way to offset the risk of subsidy cuts is to look for alternative energy producers that have secured long-term, government-guaranteed contracts for the power they generate.

Alternative energy investments: Algonquin Power has made a big move into wind

In the latest issue of Canadian Wealth Advisor, our newsletter for safety-conscious investing, we’ve published a special update on two companies that are making big alternative energy investments. (Read on to learn how you can get this issue—which gives you our clear buy/sell/hold advice on both of these stocks—absolutely FREE.)

One of these companies is Algonquin Power & Utilities Corp. (symbol AQN on Toronto). Algonquin holds interests in 44 hydroelectric plants in Canada and the northeastern U.S. It also owns 12 thermal-energy facilities. Algonquin’s wholly owned subsidiary, Liberty Water Co., owns 19 water-distribution and waste-water plants in the U.S.

In Wall Street Stock Forecaster, you get an investment advisory that's 100% focused on U.S. value stocks identified by my ValuVesting System™. What's more, today's low U.S. dollar provides you with a rare opportunity to add world-dominating U.S. stocks to your portfolio at bargain prices. Don’t miss out. Click here to learn how Wall Street Stock Forecaster can help you tap into high-quality opportunities in the U.S. stock markets.

Algonquin has made a number of big wind-power investments: the company owns wind farms in Manitoba and Saskatchewan, and is developing other wind projects in Ontario and Quebec.

As well, Emera Inc. (symbol EMA on Toronto) and Algonquin are forming a joint venture called Northeast Wind to build wind-energy projects in the northeastern U.S. Emera holds a 24.4% interest in Algonquin.

In addition to its renewable power assets, Algonquin has a separate partnership with Emera called Liberty Energy Utilities. This partnership continues to make acquisitions.

So far, Liberty Energy’s purchases include NV Energy, which sells power to 47,000 customers near Lake Tahoe; Atmos Energy, which distributes natural gas to 84,000 customers in Missouri, Iowa and Illinois; and two other utilities that sell electricity and natural gas to 130,000 customers in New Hampshire.

Algonquin is also a dividend paying stock. Its shares yield a high 4.9%.

Get our up-to-the-minute advice on Algonquin and 19 other safety-conscious investments FREE

As I mentioned, investing in renewable-power projects like wind farms adds longer-term risk. In the latest Canadian Wealth Advisor, we look to see if Algonquin’s government electricity contracts and its other operations (including its partnerships with Emera) are enough to help it offset the risk of cuts to politically sensitive green-power subsidies.

We’ve concluded our analysis with our clear advice on whether you should buy, hold—or sell—the shares.

Best of all, in addition to the latest issue of Canadian Wealth Advisor, your FREE trial contains 5 in-depth Special Reports and much more. Don’t wait! Click here start your 1-month FREE trial to Canadian Wealth Advisor now.

ALGONQUIN POWER & UTILITIES CORP. $5.71 (Toronto symbol AQN; Shares outstanding: 94.3 million; Market cap: $677.1 million; TSINetwork Rating: Extra Risk; Dividend yield: 4.6%; www.algonquinpower.com) holds interests in 44 hydroelectric plants in Canada and the northeastern U.S. It also owns 12 thermal-energy facilities. Algonquin’s wholly owned subsidiary, Liberty Water Co., owns 19 water-distribution and waste-water plants in the U.S.

The company also has a partnership with Emera Inc. (Toronto symbol EMA), which is a recommendation of The Successful Investor, our conservative growth advisory. Emera holds a 24.4% interest in Algonquin. This partnership, called Liberty Energy Utilities, continues to make acquisitions.

Liberty Energy’s purchases include NV Energy, which sells power to 47,000 customers near Lake Tahoe; Atmos Energy, which distributes natural gas to 84,000 customers in Missouri, Iowa and Illinois; and two other utilities that sell electricity and natural gas to 130,000 customers in New Hampshire.

Algonquin has also made a number of wind-power investments: it owns wind farms in Manitoba and Saskatchewan, and is developing other projects in Ontario and Quebec. As well, Emera and Algonquin are forming a joint venture called Northeast Wind to build wind-energy projects in the northeastern U.S.

In the three months ended March 31, 2011, Algonquin’s earnings per share rose 25%, to $0.05 from $0.04. Cash flow rose 77.8%, to $0.16 a share from $0.09 a share.

Algonquin yields 4.6%, and trades at just 6.6 times its forecast 2011 cash flow of $0.86 a share.

Algonquin Power & Utilities is still a buy.

INNERGEX RENEWABLE ENERGY $9.70 (Toronto symbol INE; Shares outstanding: 55.6 million; Market cap: $785.2 million; TSINetwork Rating: Extra Risk; Dividend yield 6.0%; www.innergex.com) owns and operates 23 hydroelectric and wind-power facilities in Quebec, Ontario, B.C. and Idaho.

Innergex gets about 81% of its power from hydroelectric plants. The remaining 19% comes from wind farms.

The company aims to rapidly expand its hydroelectric and wind-power capacity. It is now developing or building 11 projects. In addition, Innergex will start up its first solar power project next year.

In the quarter ended March 31, 2011, Innergex’s earnings per share doubled, to $0.08 from $0.04. Cash flow per share rose 5.9%, to $0.18 from $0.17.

Innergex’s shares yield 6.0%. The stock trades at 7.7 times forecast 2011 cash flow of $1.26 a share.

Innergex Renewable Energy is a buy.