CalPERS on the Hunt for Renewable Investments

New investment sustainability director bullish on ‘boring’ clean energy opportunities.

The new investment sustainability director for the California Public Employees’ Retirement System (CalPERS) is bullish on renewable energy power generation, signaling in comments that the largest US pension plan is continuing to look at expanding such investments.

Beth Richtman told the CalPERS board on July 16 at the system’s retreat meeting in Walnut Creek, California, that investing in renewable energy makes sense for a variety of reasons.

“One aspect that’s nice about investing in renewable energy assets is that they are also less likely to face the type of regulatory and societal transition risks that fossil fuel power plants and higher carbon risk [plants] face,” said Richtman, who was named managing investment director of the CalPERS sustainable investments program in April.

CalPERS is not alone in its search for renewable investments; globally it is competing against other large pension plans, endowments, and foundations for investments in wind and solar power and other alternative generation facilities.

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Richtman said the investments also bring in a dependable, regular amount of cash. “The reason we’ve invested in renewable energy power plants, for instance, is because of the opportunity to basically invest in very stable cash-flowing assets,” she said.

In  November 2017, the $355 billion CalPERS announced it had entered into a purchase agreement to buy an 80% cash equity interest in Rocky Caney Holdings LLC, which owns two wind farms, the Caney River facility in Elk County, Kansas, and the Rocky Ridge facility in Kiowa and Washita Counties, Oklahoma.

CalPERS paid more than $200 million to buy Caney River, a 200 MW facility that began commercial operations in 2011 and sells all of its energy output to the Tennessee Valley Authority. The other facility, Rocky Ridge, is a 149 MW facility that began commercial operations in early 2012, and sells its output to the Western Farmer Electric Cooperative.

CalPERS made the investment through its Gulf Pacific Power LLC account, a partnership between CalPERS and alternative asset management firm Harbert Management Corp. that goes back at least five years.

The pension plan’s original investment was $600 million in the partnership, which today has grown to around $800 million. Investment returns for the partnership were strong for the one-year period ending Dec. 31, 2017—14.3%, show CalPERS statistics—but for the three-year period were a modest 6.7%. Return statistics were unavailable for the five-year period.

The partnership between CalPERS and Harbert also includes a solar holding. In March 2016, CalPERS announced  it was buying a 25% stake in Desert Sunlight Investment Holdings, a solar company that owns two solar generators near Palm Springs, California.  Again, CalPERS saw the fact that the two solar plants sell their energy to California utilities versus long-term contracts as an attractive feature of the deal.

“Desert Sunlight presents a great opportunity for CalPERS, allowing us to invest in California and in clean renewable energy,” said CalPERS Chief Operating Officer Ted Eliopoulos in a statement at the time.

Richtman touted that investment in her talk on July 16.

“I want to bring up the most boring part of my CalPERS career so far has been listening into solar power plant operating calls. Boring because the sun shined, and they generated cash flows,” she said. “I love boring investments like that.”

Richtman said she suspected that CalPERS stakeholders who want the pension system to focus on generating top-tier returns and advocates for cleaner energy, “can agree that when we can make attractive returns,” while at the same time delivering cash flow to meet liabilities and have a positive environmental or social impact, “it’s a good thing.”

Why wouldn’t we?” she asked

Before joining CalPERS seven years ago, Richtman had worked as director of business development for a renewable energy company.

Sources tell CIO that competition is fierce among institutional investors for access to the top-yielding investments in the alternative energy space, making it difficult for CalPERS to find additional investments.

The pension plans holdings in the Harbert partnership also include a power plant fueled by burning cleaner natural gas in the New York City borough of Queens.

CalPERS divested of more than $14 million in stock in coal companies in 2017 to comply with a new state law.

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