LONDON (Reuters) - European investors are returning to green technology stocks after switching to safer investments earlier in the recession, and companies involved in energy efficiency and biofuel production show the most potential.

Interest in the clean technology sector is running high as governments set emissions targets and unveil subsidies for technologies to combat climate change, and as companies work on generating power from wind, waves and whisky leftovers.

"What are the game changing possibilities? You're looking at wave, tidal, second-generation biofuels," said Bruce Jenkyn-Jones, Managing Director of listed equity funds at Impax, a specialist environmental investment company.

Just this week, U.S.-based Khosla Ventures raised more than $1 billion for renewable energy and clean technology funds, the largest clean-tech dedicated fundraising by a single venture capital firm since 2007.

Impax has also seen money start to come in again from the beginning of the second quarter, though this has not yet returned to the levels it was seeing in 2007.

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