A few investors and managers are investing in cleaner sources of energy, betting on the increasing profitability of solar and wind and new technology that could upset the oil- and gas-based energy market.
"Clean energy is an acquired taste for investors," Mercury Capital's Mr. Pardee said. "Investors have had mixed experiences investing in renewables … (but) there is demand. There are people becoming good at it. ... Renewable investments seem to do better in a broader fund in which the manager can time what they see as opportunity."
Last year, for example, the C$189.5 billion ($146 billion) Ontario Teachers' Pension Plan, Toronto, and clean-energy distributor Anbaric created Anbaric Development Partners for clean-energy infrastructure projects in North America. OTPP will hold a 40% stake in the new firm.
In February, CalPERS invested an additional $246 million in Gulf Pacific Power, an infrastructure separate account that is an existing partnership between CalPERS and Harbert Management Corp., investing in clean energy. The total asset size of the account could not be learned.
CalPERS also has a custom fund of funds with $257 million in plan assets managed by Capital Dynamics investing in clean energy and technology.
"Renewable projects, especially with long-term contracts, are good for pension funds, insurance companies, sovereign wealth funds — people with long-term investment horizons," said John Breckenridge, New York-based managing director and head of clean energy infrastructure at Capital Dynamics.
The firm closed a $1.2 billion fund, Capital Dynamics Clean Energy & Infrastructure V, in January 2017 and by February 2018, executives had invested the entire fund, Mr. Breckenridge said. The fund is a 15-year fund whose lifespan can be extended.
"For very, very large investors — investors with hundreds of millions of dollars — we try to accommodate them" if they want to continue owning their slice of the investment, he explained. When the fund comes to the end of its life, large investors can continue owning their portion of the investment.
"Once projects are up and running, there is a stream of cash flows people like and it has an (environmental, social and governance) aspect to it," Mr. Breckenridge said.
David Scaysbrook, Isle of Capri, Australia-based co-founder and managing partner of Quinbrook Infrastructure Partners Pty. Ltd., a manager focused on low-carbon and renewable energy infrastructure investments, sees a lot of opportunity in the U.S.
"It's not ideological anymore but based on dollars and cents," Mr. Scaysbrook said. "The amount of activity and money around clean infrastructure is reaching heretofore unprecedented levels."
Coal-fired and other traditional sources of energy cannot compete on costs with cheaper renewables, he said.
What's more, investors will need to consider that technological advancements in the renewable sector could result in clean energy sources cutting into the businesses of traditional energy producers and eventually upend the energy sector, Mr. Scaysbrook said.
For example, toll-road investors should consider whether to install charging stations for electric vehicles, he said.
"Wind and solar, in particular, represent 80% of all investment dollars in clean energy. ... There is no question they are forcing out higher-cost coal products," Mr. Scaysbrook said.
Renewables are, however, not competing with gas, which is now a transition fuel that takes over "when the wind doesn't blow and the rain doesn't shine," he said. "Gas can support clean energy until clean energy can go around the clock. … How long? Not 10 years — maybe 20 years from now," Mr. Scaysbrook said.