Soaring fossil fuel prices, where the European oil benchmark is pushing $100 a barrel, favor oil and coal producers, while falling gas prices have undermined wind power generation especially in the United States.
And the financial crisis has hit capital-intensive renewable energy projects, trimming demand for wind turbines, while the near-term solar future is clouded by cuts in European subsidies.
In all, that contributed to a dire 2010 in green equity markets, where the climate change theme under-performed global stocks by 10-20 percentage points, and new momentum is expected to be slow in 2011.
Project development returns were often acceptable, said analysts, but deployment hadn't met expectations two years ago.
Specialist environmental investors are hunting growth and bargains among companies in narrower sectors, such as energy efficiency, especially in emerging markets where power demand is surging, and in water.
"We've used our deep skepticism of bubble markets to avoid renewable energy or have much reduced exposure compared to our peer group or indices in particular, and have much more in energy efficiency and to a lesser extent water as well," said Ian Simm, chief executive at Impax Asset Management, an investor in environmental markets.
Impax assets rose 44 percent in the year to last September, and are now at about 2.3 billion pounds US $3.60 billion under management, out-stripping climate indices most of which fell.
Impax would remain over-weight in energy efficiency and aimed to pick up bargains in waste management as well as invest in companies which test air quality. "It's difficult to see the short-term catalysts for renewable energy stocks," Simm added.
The threat of climate change made the sector a long-term opportunity, said Alastair Bishop, a portfolio manager in BlackRock's natural resources equity team, but he agreed that renewable energy faced headwinds.
Bishop favored operators of renewable energy assets which had been over-sold, and energy efficiency companies such as Johnson Controls, whose automation equipment cuts the cost of controlling temperatures in buildings, as well as makers of LED lighting manufacturing equipment.
BlackRock's natural resources team has $2.7 billion assets under management in new energy and $5.1 billion in "world energy" predominantly oil and gas with cumulative returns in 2010 of -12.8 percent and +16.8 percent respectively, illustrating the relative performance of the two asset classes.
Impax's Simm rejected the notion that conventional and alternative energy were in competition for investor cash.
But contrasting fortunes for Coal India and Enel Green Power, whose shares soared and fell respectively when they listed on the same day last November, illustrated which sector had momentum.
"It tells you a lot about the market, that institutional investors including those very well informed about climate change, who join the various groups which claim to be concerned, will still put their money in what they think is a good deal," said James Cameron, vice-chairman at UK-based Climate Change Capital. "There's a massive amount of demand for coal."
Climate Change Capital had $1.5 billion funds under management as of end-2009, in carbon markets, renewable energy and efficiency.
Favoring the clean technology outlook, higher oil and coal prices will drive efficiency and make renewables more competitive, while economic recovery packages will disburse cash at an increasing rate in energy efficiency this year, said HSBC.
Emerging markets are a particular focus, as developing countries struggle to meet power demand. Impax has increased its asset allocation in the Asia-Pacific region to 20 percent from about 13 percent two years ago, said Simm.
"Global momentum behind renewable equipment, both solar and wind, has now firmly shifted to China from Europe," said Citigroup analysts in a research note published this week.
Green investing doldrums follow a broader loss of political and media climate focus in the wake of the financial crisis and after a Copenhagen summit in 2009 failed to agree a global deal to cut carbon emissions.