The renewable energy sector looks likely to rebound significantly faster than the rest of the economy, due to an unexpected resilience.

Government-guaranteed revenues have proved crucial to the sector's steady performance despite widespread economic turmoil. While many businesses are encountering cash-flow problems, utilities remain relatively flush with cash since they're able to invest in both small and large renewable energy projects.

The solar and wind power sectors are especially hearty; with the extensive goals for dropping carbon emissions levels, there is a demand for renewable energy that cannot yet be filled. The sector is not entirely safe from the current credit crunch, however. Development costs have risen quickly while access to large lines of credit has become tougher to come by. That tightened market has brought opportunities for big utilities, although their investments haven't quite matched the funds that were previously available.

"The big projects being built by big utilities don't need to borrow from banks for short-term loans," JP Morgan analyst Chris Rogers told Reuters. "But if banks don't lend to each other they certainly won't lend to small project start-ups."

Big utilities have another opportunity available to them that just isn't an option for most other business sectors: as government-regulated businesses, utilities can borrow inexpensively.

Danish consulting firm BTM Consult has estimated that, at the end of 2007, utilities owned only 40 percent of the world's installed wind power capacity. But that number is changing quickly. "I would say about 80 percent will be owned by the utilities in the next five years," said BTM Consult analyst Per Krogsgaard, adding that the credit crisis will speed up that transition.

This change marks a new step in the evolution of renewable energy. In the past, many renewable energy projects have been effectively outside the mainstream. But utility companies are funding and purchasing a growing number of such projects. These large utilities have come to the conclusion that renewable energy is going to pay off — and relatively quickly. Because of rising energy costs, renewable energy projects are cost-effective even if a utility needs to put up a large initial investment. Furthermore, companies across a wide variety of industries have made commitments to move to alternative energy sources.

Utilities' growing interest in renewable energy projects won't entirely shore up the sector. A number of renewable energy stocks have seen prices drop lately. But the green sector has an unusual ability to rebound.

Photo — Flickr user Phault