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Positive legislation in Europe and a change in US leadership next year have been keeping alternative energy fund managers happy for some time, but rising oil prices could give them even more reason to celebrate.

Businesses hoping to cash in by helping to avert climate change are not new. Neither are the international funds, queuing up for their slice of the pie.

Many point to pledges - such as those from the European Union to cut emissions by 20 per cent, derive 20 per cent of energy from renewable sources and increase efficiency by 20 per cent by 2020 - as a near guarantee the alternative energy sector will produce returns, even during a slowdown.

However, recent months have seen many politicians blasted for backtracking on their green commitments. Questions have also been raised over how impervious alternative energy firms are themselves to the soaring oil price.

Despite this, Robin Batchelor, manager of the £181.9m BlackRock New Energy investment trust, says alternative energy can only benefit from the rise in fuel costs.

"The common theme of constraint in growing energy supply to meet firm emerging market demand suggests that the trend of high traditional energy prices is set to continue," he says. "This drives concerns for energy security and improves the economics for alternative energy."

Wind is a favoured sub-sector in the BlackRock portfolio due to what the manager calls its position as the "affordable, low carbon, scalable power generation technology of choice".

Wind accounts for the largest share of new generation capacity installed in the US and Europe in 2007, at 30 per cent and 40 per cent respectively.

Ed Guinness co-manages Guinness Asset Management’s Dublin-domiciled £4m Alternative Energy fund, part of a £160m strategy that includes US retail and institutional assets.

He says it is not only the cost of fuel that is driving up electricity prices, but also increases in the raw materials needed for construction.

"Prices of oil, gas and coal are all increasing massively, but the construction costs for power plants are up too. It now costs twice as much to make electricity from new-build gas turbines than it did one year ago."

The co-manager says wind and solar energy now look highly competitive.

"Last year we were telling people that solar energy was seven years away from grid parity, but now it looks three to five years away. It obviously takes time to build new turbines, but the oil price rise is a big accelerator."

Despite all these reason to be cheerful, alternative energy stocks have not escaped the unsettled conditions in equity markets. In January 2008, the BlackRock New Energy investment trust lost 16.9 per cent of its net asset value. The NAV largely recovered, however, closing the six-month period to 30 April down by 2.7 per cent. By comparison, the MSCI World Developed Markets index fell by 5.9 per cent.

From the beginning of 2008 until 31 May, Guinness Asset Manangement’s Alternative Energy fund lost 10.2 per cent of its value, but outperformed its benchmark, the WilderHill Clean Energy index, which fell by 18.7 per cent.

Both management groups agree, whoever wins the US presidential election, the outcome for the alternative energy sector is likely to be extremely favourable.

Mr Guinness suggests the new president could be influenced by demands to introduce longer-term tax incentives for green energy companies. Tax breaks are currently reassessed every two years, making long-term growth more difficult for technology developers. However, there are calls to increase the period to eight years.

But although Peter Bickley, chief economist at Tilney Private Wealth Managers, believes alternative energy will be a long-term growth story, he is sceptical about piling cash into the sector.

"I’ve seen figures that show investment into alternative energy has actually been quite disappointing," he says.

The economist highlights issues over planning difficulties in the developed world and the amount of time needed for the technologies to develop. And, if the oil price corrects in the coming months, which Mr Bickley thinks is likely, it make alternatives less attractive once more.

"Most of us believe the supply and demand dynamic for oil has shifted, but making an argument for alternatives on the basis of oil at $136 a barrel, up 30 per cent in three months, is rather foolish," he says.

Oliver Good is a reporter at Investment Adviser