* Renewable energy stocks under-performing wider markets
* Recession would curb project finance, hurt further
* Support from continuing power demand, nuclear phase-out
By Gerard Wynn
LONDON, Aug 11 A dimming economic outlook has cut the prospects for low-carbon stocks and commodities, vulnerable to a credit squeeze and falling climate priority, though continuing demand to build and replace power generation provides support.
Particular winners may include efficiency technologies as some countries pare back nuclear power.
Clean energy stocks have consistently under-performed wider market indices in the past month and year, while carbon credits are one of the worst performing commodities.
Under-performing stocks is a long-running theme: European and U.S. solar manufacturers are struggling to compete with low-cost Chinese rivals, while a global over-supply in wind turbines, especially in Europe and North America, has squeezed margins.
And some independent renewable energy developers, such as Falck Renewables , have had to raise capital through rights issues which dilute earnings per share.
A downturn would push falls, for example if squeezed lending shuts off project finance for wind and solar.
"The current stock performance is beginning to price a repeat of the dislocations seen following the collapse of Lehman Brothers and the subsequent impact on project lending," said Barclays Capital analyst Rupesh Madlani.
"Many companies may find themselves in a prolonged difficult operating environment, this time without governments that are able to support with the broad range of policy tools normally available."
A specific risk from an economic downturn is that clean energy support comes under attack, as developed government cut deficits and customers balk at the cost of green policies passed on to electricity bills.
In Europe, regulation looks relatively safe in Germany and Britain, for example, where there is no option but to replace a large chunk of ageing power generation.
In the United States, a renewable electricity tax credit expires at the end of 2012, when its renewal may get caught up in budget cuts in an election year.
Following the last financial crisis, big policy breakthroughs are now out of reach, including a federal U.S. climate bill, a more ambitious European carbon emissions target and a global, U.N.-backed climate deal.
Bright spots include energy-paring technologies, where industrial giants Germany and Japan may lead innovation to help them wean off nuclear power, said HSBC analyst Nick Robins.
China's 12th five-year plan may cap energy consumption, although likely at a rather generous level.
Germany plans to cut power consumption by 10 percent by 2020, and green energy may benefit.
"Offshore wind energy is now even higher up Berlin's agenda than previously," said European energy analyst at IHS Global Insight, Kash Burchett, referring to a recent increase in a feed-in tariff price premium.
Anticipated steps by governments to entice pension fund billions into low-carbon infrastructure, away from short-term investments including stocks, have not materialised, however.
Britain's government-backed "Green Investment Bank" for example won't be able to borrow in capital markets, perhaps by issuing bonds, before 2015 and then only "subject to conditions".
Environmental concerns are famously cyclical, sliding down a priority ranking when times are tough.
Meanwhile, the climate issue remains. In July, the extent of Arctic summer ice reached an all-time low in a 32-year satellite record, according to the U.S. National Snow and Ice Data Center (NSIDC), in line with expectations as the area warms. (Reporting by Gerard Wynn; additional reporting by Nina Chestney; editing by Jason Neely)