The U.S. government’s approval of the Cape Wind renewable energy project last week cleared the way for up to 130 wind turbines to begin rising above a 25-square-mile area in Nantucket Sound, five miles off the coast of Massachusetts, but investors’ positive reaction to the news was obscured by worries surrounding Greece’s solvency.

Energy Management Inc. (EMI), the Massachusetts company developing Cape Wind, estimates an average output of 182 megawatts from the completed project, enough to supply 200,000 homes, or 75 percent of the Cape Cod, Nantucket and Martha's Vineyard markets. EMI hopes to begin construction on the $2 billion project this year and start generating power as early as 2012.

Although offshore wind energy installations have been in service for more than 20 years in Europe, the Cape Wind project is a first for the United States. The U.S. Department of the Interior estimates the Atlantic offshore wind energy potential at 1 million megawatts, and dozens of projects are currently slated for sites up and down the East Coast.

The state of Maine, for instance, has set a goal of generating at least 300 megawatts of offshore wind power by 2020, while a consortium of New York state agencies and utilities is looking to develop a 700 megawatt installation off Long Island. In North Carolina, Duke Energy and the University of North Carolina are collaborating on a pilot project off the Outer Banks.

Although investors reacted favorably in the immediate aftermath of the Interior Department’s announcement, the most popular clean energy ETFs all closed lower on the week, as Greece’s downgrade to junk status took center stage in world markets.

The SPDR S&P 500 ETF (NYSEArca: SPY) lost 2.5 percent on the week at $118.81 a share, after Standard & Poor’s downgraded Greece as well as Portugal and Spain, leaving investors wondering about the long-term viability of the eurozone.

Not Heavily Traded

Some traders said the clean energy ETFs rose and fell back down so readily in part because they aren’t actively traded, which means prices move that much more easily.

“If anything, this kind of news probably spooks some shorts out of their positions,” said Paul Weisbruch, head of ETF trading and sales at Street One Financial, a King of Prussia, Pa.-based firm that specializes in ETF trading. Shorting involves selling shares that have been borrowed, and covering a short means buying the borrowed shares back, creating a definite, but weak, spike in price.

Weisbruch said he’s seen some PBW call option selling, which he reckons may be by holders of the underlying ETF who are trying to generate some extra income at a time of low volatility when many investors are waiting to see what happens in Massachusetts and the rest of the industry before buying heavily.

Weisbruch noted that the PowerShares WilderHill Clean Energy Fund (NYSEArca: PBW) is among the more actively traded clean energy ETFs. The fund fell 3.2 percent last week, after rising 2.8 percent initially on the Cape Wind news.

The Market Vectors Global Alternative Energy Fund (NYSEArca: GEX) rose 3.6 percent on the day after the Department of the Interior announced the project, but ended up 4.9 percent lower on the week, at $22.95 per share.

Similarly, the PowerShares Global Wind Energy Portfolio (NasdaqGM: PWND) rose 1.4 percent on the news and fell 3.6 percent in the whole week at $12.60; while the First Trust ISE Global Wind Energy Fund (NYSEArca: FAN) added 1.4 percent, but had lost 4.4 percent by the time the market closed for the weekend.

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