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Summary:

If one percent of retail investments in savings accounts, money markets and U.S Treasuries was put into crowdfunding of solar projects, that would deliver more than $90 billion for the creation of clean energy projects, according to a new white paper from Bloomberg.

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If just one percent of retail investments in savings accounts, money markets and U.S Treasuries was put into crowdfunding of solar projects — that can provide a 5 to 9 percent return to the investor — then that would deliver more than $90 billion for the creation of clean energy projects, according to a new white paper from Bloomberg.

The idea behind this emerging sector is that investing in the construction of putting solar panels on rooftops can provide a relatively low risk return on the upfront investment. Building owners generally lease solar equipment and enter into a contract to pay a fixed, low, electricity rate, commonly over about two decades. Over the past several years solar financing companies — like Clean Power Finance, Sungevity and Solar City — have emerged to provide the upfront capital, which can generally deliver around a 12 percent return.

But now new startups have emerged that want to leverage crowdfunding to provide that solar project finance capital. Solar Mosaic is the most well known of these companies, and the startup recently raised $2.5 million from venture capitalists and received a $2 million grant from the Department of Energy. Other startups named in Bloomberg’s paper include Abundance Generation in the UK, and SunFunder in the U.S.

Solar Mosaic, when it launches its financial products as soon as this Summer, could offer one- to three-year notes with something like a six-percent return, one of the company’s investors told me last year. The company is in a quiet period right now, but in April filed with the U.S. Securities and Exchange Commission to offer “Solar Power Notes to the public, with proceeds going to fund solar power projects,” notes the Bloomberg paper.

Beyond the financial return, crowdfunding and solar have other reasons to fit together. Kickstarter has exploded as a way for crowds to fund projects that they connect with from art to technology to videos. The experience is largely an emotional one, where people donate generally small sums of money because they feel compelled to support the project. Solar roofs — with their carbon-free energy potential — could use crowdfunding to benefit from this same emotional connection.

As the Bloomberg paper points out, these crowd funding solar startups will need to build that type of emotional relationship with their potential investors, keeping investors up to date on their projects, clean power produced and communities affected. I bought into Solar Mosaic’s beta solar program last year and helped fund a project in Oakland, and I can report that they were already doing this type of outreach.

The Bloomberg paper also makes a good point about how crowdfunding and solar could work well for solar debt, which is somewhat low risk, but that investors should probably shy away from crowdfunding via equity. Having unsavvy investors buying into high risk technology startups, could be a really bad idea.

Yet despite the risks, the paper concludes:

Crowdfunding commitments to clean energy would become meaningful for clean energy in an absolute sense, even if they still remain a tiny relative proportion of all retail funds available for investment.

  1. cameron mulder Sunday, June 17, 2012

    I’m a little bit confused by this. If the numbers being stated are true and an investor can get a 5% to 9% return by investing in Solar, then why arn’t people jumping at this.

    Right now we have tons of investors putting bucket loads of cash into US Treasure bond that give a negative return.

    Something about these numbers don’t add up to me. These projects must be seen as pretty risky.

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    1. Richard Hayes Wednesday, June 20, 2012

      It is a ‘market failure’, basically the lack of knowledge and opportunities means that people who should invest dont.

      In the UK, the average ROI for energy efficiency is over 48%

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  2. @cameron, these crowd-funding aggregators are really new. Solar Mosaic’s investment product isn’t even open for business yet.

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    1. cameron mulder Sunday, June 17, 2012

      @Katie Although the crowd-funding part is new, investing is solar projects as described in the article is not. Utilities have been doing things like this for years. If the return on investment is really as large as the article is stating than I don’t understand why investors are not already fully funding these projects.

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      1. Investors, like banks and even Google, are increasingly putting funds into solar installations, like through groups like SolarCity and Clean Power Finance. The return on that can be even higher like 12%. The returns, 5 to 9%, for crowdfunding solar, are from Bloomberg, as well as interviews with the companies themselves.

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  3. Enes Hoşgör Monday, June 18, 2012

    Where can find this Bloomberg white paper? Thanks.

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    1. I added the link into this post. First graph.

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  4. Please never ever utter the phrase “If just one percent of…” unless, of course, your intention is to immediately discredit everything that is to follow.

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  5. Tyler Tringas Monday, June 18, 2012

    Great article. The economics of other people’s solar are so compelling for personal investors. I want to know more about these “one- to three-year notes” though. At those tenors you’re not really adding much value. In any case you could crowdfund your home solar project with a 6-year note from Lending Club today, though the interest rate would be purely from your personal credit and nothing to do with the solar asset. Getting to 10-15 year notes is the key.

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  6. There are initiatives in Continental Europe as well, although the regulatory environment is different to that in the US. Most European countries have Feed-in Tariffs for purchasing solar energy, which are dropping. A crowdfunding platform for renewable energy and solar in Germany is Sunnycrowd.

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  7. Great to see crowdfunding taking off for solar! I’ll have to look into this to see if people outside of the US can invest too.

    There’s an interesting project currently underway in the Netherlands, which is where I live. It’s about crowdfunding a windmill, not the traditional type tourists flock to see, but the hypermodern sort. In return, you get “free” green energy during an X number of years, depending on the price of fossil energy.

    For example: if you were to purchase 4 “shares” (at €345 each, plus a yearly maintenance fee of €66), you’re entitled to 16 years of “free” green energy.

    More information can be found on this website, http://www.windcentrale.nl, but unfortunately, it’s only in Dutch.

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