Will so-called crowd-funding provide the next-generation of investment for clean power? The Senate’s version of the Jumpstart Our Business Start-ups (or JOBS) Act was planned to be voted on Tuesday, but has been delayed in the Senate by new arguments. That bill already had the support of Google (s GOOG), Steve Case, Angel List and many others, and we’d also like to lend our support for the bill from our small start-up Solar Mosaic in the clean-energy community.
The JOBS Act (or INVEST Act as the Senate has rebranded it) is a series of six bills bundled together to make it easier for startups to gain access to capital. The most exciting aspect of this bill is what it will do for crowdfund investing. In the age of online networks, it seems absurd that startups are forbidden from raising money through these networks or even publicly discussing the fact that they are raising money.
The JOBS Act would ease these regulations and allow startups to raise seed capital from a large number of individual investors. Rather than inviting fraud, crowd fund investing will bring more transparency to the market through regulations that require companies to share information and by literally inviting the crowd to scrutinize the merits of the investment.
Crowd-sourcing for clean energy
At Solar Mosaic, we support this Bill and not just because it will help entrepreneurs like ourselves to raise money. We also think crowdfunding can bring on a clean energy revolution. To understand why, we need to understand how our current large-scale and highly centralized energy infrastructure came to be.
On September 4, 1882 Thomas Edison transformed his light-bulb into an electric illuminating system that made it possible for homes and businesses to purchase electric light at a price comparable to that of gas. Less than a month after opening, Edison Electric boasted 59 customers; a year later, Edison’s system became the model that led the way for electrification across the United States.
Edison couldn’t have heralded the advent of our modern electric system without the backing of J.P. Morgan. Familiar name? The investment banks that exist today got their start in the first industrial revolution and were powered by coal. It was coal that powered the steam-engines westward, opened up America, and made the railroad titans that backed them rich. Later, J.P. Morgan financed utilities across the country, heralding our modern electric system.
The fossil fuel system succeeded in many ways, but today, there are still 1.6 billion people without running water or electricity. Our current grid is wasteful, dirty, expensive, and polluting. February was the hottest month on record. We need a power shift. The ultra-centralized banking infrastructure that helped build the industrial era was well suited for centralized power generations, but it is struggling to keep up with the agile, decentralized, and distributed power of the emerging solar economy.
Banks will gladly finance a billion dollar coal plant, but due to their high overhead it is uneconomical for them to do their standard due diligence for a $30,000 solar power plant on your roof. Yet, so much of the solar energy revolution will come from local, small and distributed solar. In Los Angeles alone, there’s enough rooftops for 5 Gigawatts of clean power. Instead of 2-3 massive fossil fuel or nuclear power plants, those 5 Gigawatts will come from hundreds of thousands of agreements with building owners and tenants.
Some of the biggest solar developers — Solar City, SunRun, Sungevity, and Clean Power Finance — have negotiated complex tax equity financing deals with big banks to aggregate hundreds of millions of dollars into solar lease and power purchase agreements. In California alone there are over 700 solar developers, and most of them do not have the pipelines to access bank dollars. When we started Solar Mosaic, we approached Wells Fargo to see what it would be like to get bank financing for solar projects. They told us to come back when we had $50 – $100 million in solar projects.
Despite the lack of bank assistance, we might get there faster than you think. Solar grew at 100 percent last year. In the US alone, there will be an estimated $50 billion invested in solar projects in the next 5 years, and analysts predict huge gaps in financing, even as billionaires like Warren Buffett and Google get into solar investment. Simply put, we need a web 2.0 solution that is massively scalable – one that empowers individuals to engage and invest in this tremendous opportunity.
The crowdfunding opp
So why crowdfunding? Retail investors continue to face a dismal choice between investing in financial markets that are opaque and volatile, or accepting paltry returns on “safe” investments such as CDs or bonds. Big banks and brokerage houses aren’t set up to mobilize millions of people to invest directly into tangible projects and offer an engaging experience. Yet that is what so many people crave today. People want to see impact. They want to be connected to the power of their capital and see its force in the world.
Crowdfunding has proven effective in bringing liquidity to financial markets while creating new investment opportunities for retail investors. The result has been the rapid growth of crowdfund investing platforms. Lending Club and Prosper, for example, have collectively funded over $660 million in loans and are growing at 100% annually.
Crowdfunding for solar loans has distinct advantages over these platforms: solar loans are backed by a revenue-producing asset, and counter-parties are paying for a service (electricity) they already pay for. This reduces the risk to investors because counter-parties are less likely to default since they save money from day one.
The early financial markets and energy markets worked hand in hand to drive explosion of new energy forms that enabled tremendous work to happen in human civilization. It brought upon the Industrial Age. Today, we’re seeing a different story. Banks aren’t lending and many consumers lack faith in their financial future and security. Crowdfunding could be a new financial paradigm for clean-energy and provide critical value to retail investors.
Who knows who will be the next JP Morgan standing next to the next Edison as she develops a new light to take us into the 21st century. With the passing of the JOBS Act, we hope that the unleashing of people-powered capital will enable more innovation and spur economic prosperity by democratizing the benefits of those innovations. We would like to lend our support to this important legislative trend. It may be a humble offering, but like crowdfunding itself, it’s not the size of any one effort, but the strength it derives from the sum of its parts.