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.