The use of solar energy for heating and for generating electricity is not new. However, the rise in oil prices and efforts to find clean, renewable energy sources are beginning to make this area an investor favorite.

The Solar Energy Industries Association estimates that the global solar market is expanding at a 40% clip annually. That's the kind of number that could translate into some big gains for companies in the solar-energy business.

The government is also getting into the game, by way of funding and basic research. To fulfill solar energy's promise, the president's Advanced Energy Initiative and the 2007 federal budget proposed a new $148 million Solar America Initiative, for an increase of $65 million over the fiscal '06 budget. The Solar America Initiative is supposed to accelerate the development of concentrating solar power (CSP) systems, photovoltaics (PV), and other advanced solar electric technologies, as well as make those technologies cost-competitive with other forms of renewable electricity by 2015. In his new budget, the president has also asked for $9 billion in new funding for the Title XVII loan guarantee program, which would have the potential of funding large-scale solar power projects.

One major financial support for solar energy is notably absent, however. The new budget does not include a long-term extension of federal solar investment tax credits. These credits had been the single most important policy affecting solar development up until now. However, high prices for oil and natural gas may provide a new impetus for consumers to move to renewable solar on their own.

When it comes to solar energy, there are different types of technologies. PV devices generate electricity directly from sunlight via an electronic process that occurs naturally in certain types of material. Electrons in certain types of crystals are freed by solar energy and can be induced to travel through an electrical circuit, powering any type of electronic device or load.

CSP devices optically focus or concentrate the thermal energy of the sun to drive a generator or heat engine. They do so by means of lenses or, more commonly, mirrors arranged in a dish, trough, or tower configuration.

That last type of system, known as a power tower system, uses a field of computer-controlled flat mirrors to focus solar heat on a central tower, which then runs a central generator. Demonstration systems have shown power outputs of more than 10 megawatts, along with the ability to run overnight or in bad weather by storing heated transfer fluid in a hyperefficient "thermos bottle."

Dish systems use a dish that tracks the sun to focus energy onto a high-efficiency heat engine, which generates electricity directly. Solar heating devices directly absorb the sun's radiation with specially coated absorbers to heat air or water for use in a building.

Direct solar air collectors also exist. These simply circulate air through a pre-engineered enclosure designed to absorb a great deal of solar heat before forcing the air back into the temperature-controlled space. They can be very low-cost.

Let's examine some publicly traded companies that design and manufacture solar components and/or systems.

1. Evergreen Solar (NASDAQ:ESLR). This company manufactures the crystalline silicon wafers that are the primary components of PV cells, which generate electricity when exposed to sunlight.

The stock trades at around $9 per share, and it's been as high as $17.50 and as low as $6.97 over the trailing year. The company lost $0.33 per share through the first three quarters of 2006 and, based on lower sales forecasts, is expected to lose anywhere from $0.10 to $0.40 per share in 2007.

2. Energy Conversion Devices (NASDAQ:ENER). This company is involved in all aspects of alternative-energy generation, energy storage, and information-technology markets. The United Solar Ovonic segment designs, develops, manufactures, and sells photovoltaic modules.

The stock is currently trading at about $30 a share. It has already lost $0.13 through the first half of fiscal 2007 and is expected to lose anywhere from $0.10 to $0.26 this year. Revenues, however, are expected to rise significantly, and it appears that the company will turn profitable in 2008.

3. First Solar (NASDAQ:FSLR). The company designs and manufactures solar modules using proprietary film semiconductor technology. These modules convert sunlight into electricity.

The shares jumped on Feb. 13, after the company reported a fourth-quarter profit. Most analysts had been expecting a $0.07 loss. The profit announcement could be an indication of better results for other companies in the solar-energy sector.

4. SunPower (NASDAQ:SPWR). The company manufactures and sells solar electric power products including solar cells, solar panels, and inverters that generate electricity from sunlight for residential, commercial, and remote power applications.

The stock trades at around $45 per share, for a pricey trailing P/E of 120. However, earnings are expected to rise substantially this year, on pace to put the forward P/E at 44 for 2007 and 26.5 for 2008. Revenues should more than double during the 2007 fiscal year, from $236.5 million to between $640 million and $670 million, which includes revenue from PowerLight operations.

Keep an eye on these companies, and on solar power in general, as the industry continues to grow.

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Fool contributor Mike Norman is the founder and publisher of the Economic Contrarian Update and is a Fox News business contributor. He is also a radio show host at BizRadio Network and does not own shares in any of the companies mentioned. The Motley Fool has a full disclosure policy.