Investors chasing high returns like to get in early on the next big thing. For some pioneering firms in New Jersey, that means multimillion dollar bets on clean energy.

From Short Hills to Princeton, public and private companies are committing their own capital, or that of large investors, to building wind and solar farms and developing other types of renewable power, as well as smart-grid and energy-storage technologies.

Despite the worldwide recession, total venture capital and private equity investment in clean energy went up 24 percent in the first quarter of 2010, according to Bloomberg New Energy Finance.

In the past nine years, venture capital investment has grown from $350 million to more than $2 billion. The numbers are even larger when they include public market investment, corporate mergers and acquisitions and other types of investors.

"We continue to anticipate $180 to $200 billion in new investment in clean energy this year," said Michael Liebreich, chief executive of Bloomberg New Energy Finance.

Hudson Clean Energy Partners, a billion-dollar private-equity firm based in Teaneck, exclusively invests in clean energy. Energy Capital Partners, a Short Hills private-equity firm focused on fossil fuel and renewable power, has a $2.25 billion fund with significant clean energy investments.

Denham Capital Management, another Short Hills-based private-equity firm, has $4.3 billion under management, with more than 20 percent of its two most recent funds dedicated to clean and renewable energy. Ridgewood Capital, a $2.6 billion energy-focused private-equity firm with offices in Montvale, also has a dedicated renewable-energy subsidiary.

"We raised most of our money in the worst climate to invest in private equity that I have seen, from the spring of 2008 to the fall of 2009," said Neil Auerbach, a managing partner at Hudson Clean Energy Partners, which he founded in 2007 after leaving Goldman Sachs, where he was a partner.

In addition to private-equity funds, billions have been dedicated to growing a global green economy by Jersey-based money managers and energy companies including Prudential Financial and Public Service Enterprise Group in Newark; Lord Abbett in Jersey City; Siemens Financial in Iselin and NRG Energy in Princeton.

Returns on these investments are still highly uncertain, judging from the erratic results clean-energy equities have had. The Cleantech Index, the first stock index for the market, outperformed the S&P 500 Index by 4 percent in 2007; underperformed it by 39 percent in 2008 and outperformed it by 27 percent in 2009.

"Clean energy is still an ‘infant industry,’ so its outlook is heavily influenced by external factors, primarily public policy and the state of the general economy," said Smita Brunnermeier, a lecturer on economics and public affairs at the Woodrow Wilson School at Princeton.

"The bottom line is that it is costly, or at least not more profitable than other investments," Brunnermeier said.

FINDING A WINNER

Despite the appeal of doing good for the environment and society, making money is the first priority for clean-energy financial firms.

"Our investors expect a 30 percent annual rate of return, and it is our commitment not to disappoint them," said John Cavalier, co-managing partner at Hudson Partners.

"We do not take technology risks — we are late-stage investors," he said in a joint interview with his Neil Auerbach.

The fund has six portfolio company investments: one in a Swiss company that makes so-called smart meters for monitoring electric usage, and the rest in wind and solar-related businesses.

"We do not view ourselves as simply financial investors. We have to have influence over management," Cavalier said.

"The focus of the companies in our portfolio is that they deploy business models and technologies that have a permanent role in our infrastructure," Auerbach said. "Patience is not just a virtue. It is essential in investing in this sector."

Lord Abbett, with over $95 billion in assets under management, including an investment in a company that designs parts for wind turbines, also stresses taking a long view on clean energy investments, particularly because of their dependence on government subsidies.

"Like the dot-com proliferation in 2000, winners will emerge and grow into much larger companies," Arthur Weise, a senior research analyst, said during a discussion with analysts that was published last week. "We continue to focus our efforts on discovering those winners."

MAJOR PROJECTS

Prudential Investment Management, the asset-management business of Prudential Financial, has been a major investor in alternative sources of energy for more than 20 years, the company said. About $500 million of their $1.4 billion in clean-energy assets is in wind energy projects in seven states — making them one of the largest institutional investors in that market.

For companies like Siemens Finance, part of a German multinational conglomerate that also manufactures clean-energy equipment, they can participate in the market by providing credit lines for projects using their equipment, like for a $178 million wind project in Klickitat County, Washington, last year.

Public Service Enterprise Group, the unregulated public energy firm, has $650 million invested in solar, wind and compressed air energy storage and wind projects. In a presentation to investors in March, PSEG Energy Holdings said it had invested $100 million on solar projects in several states, including its first project, a 2 megawatt solar farm in Hackettstown.

NRG Energy, a Fortune 500 energy firm that owns power plants nationwide and a utility in Texas, has a clean energy portfolio that includes four big wind farms in Texas. They also have the largest solar farm in California, and are farthest along of any developer on a billion dollar Mid-Atlantic offshore wind project, off the Delaware coast.

"What we look for are technologies that are clean and new, and are at the level where they can be deployed and make money," said Steve Corneli, NRG Energy’s senior vice president of market and climate policy.

So far in 2010, the pace of clean energy investment has been strong, said Jason Rissanen, an audit partner for Deloitte in San Jose.

"I think at the end of the day, the social responsibility mandate is important, but businesses will do what is best for the bottom line, and they are seeing that clean tech is more efficient and drives costs down," said Rissanen. "We are seeing that clean tech choices are being made because they make good business sense."

Abby Gruen: (973) 392-5905 or agruen@starledger.com.