LONDON (Reuters) - Fuel cells are a product of the Space Age, but science fiction they are not.

The hydrogen-fueled, self-contained energy production units were developed for use in rockets. They just happen to pollute less than other sources and function very well. Visionaries see them becoming part of everyday 21st-century life, powering everything from motor cars to cell phones.

Niche investors and growth funds noticed at the start of this year the opportunity developing on the fringes of energy and power, a sector not renowned for its growth profile.

And though fuel cell stocks have taken a hit since March along with "over-cooked" Internet growth stories, it is worth a look at two bellwether stock performances from each.

At their best prices in March, Ballard shares were worth about C$200 ($132), and Yahoo! the same in U.S. dollars.

Environmental drivers like the global Kyoto protocol on greenhouse gas emissions and California laws on zero-emission vehicles go hand in hand with demand for stationary power in developing economies and demand for a more reliable power supply from computer users.

But according to broker UBS Warburg's newly appointed fuel cells research team, the ability to compete with incumbent power sources is the make-or-break issue.

"We expect the manufactured cost of systems to fall to a level that makes them competitive in their chosen markets," they said in an introductory note on the sector.

"People are interested," said a utility sector fund manager with one of the world's largest banks.

Even the cynics are hooked.

A new book by energy specialist Martyn Turner and journalist Brian O'Connell argues vigorously against the top-down aims of Kyoto, and for a global warming approach that rewards technological solutions.

The book, called The Whole World's Watching -- Decarbonizing the Economy and Saving the World, has no time for solar, wind, biomass, hydro and renewable energy in general. "There is absolutely no way even in combination that it can ever replace fossil fuels," it says.

"We believe in the future of the fuel cell and think it will change the way we power our cars trains and ships," it says.

Fuel cells use hydrogen as a fuel to create an electric current between electrodes, producing power with far less pollution than traditional burning of fossil fuel.

They remain costly to make and face some daunting technological development barriers.

But companies like Proton Energy Systems are already producing commercially viable hydrogen converters and fuel cell energy stores for backup power and premium electricity users.

These are customers who need to be especially sure of uninterrupted power supplies, and do not mind paying for it.

Domestic power plants and other more everyday applications will probably come next.

But the automotive sector is seen as the real bonanza.

Ballard has a raft of development deals with major motor manufacturers, and it reckons fuel cell vehicles (FCVs) are destined to become a $180 billion industry.

The FCV cause received a major boost early in October, when California stuck to its target for 10 percent of zero- and low-emission vehicles to be sold in the state by 2003, rejecting pleas from auto producers for a delay.

Some 40 million vehicles are registered in California. Industry estimates say 10 percent of 2003 sales would amount to around 20,000 vehicles.

Plug, which targets a market for residential fuel cell power plants, fell from grace this year when it had to rein back break-even forecasts.

Nevertheless investors are undaunted. Specialist funds include Merrill Lynch's $290 million (200 million-pound) New Energy Technology fund launched earlier this year; Impax Capital Corp, which has $35 million under management, as well as new economy energy backer, Nth Power Technologies Inc with about $200 million.