Friday Focus: The revolution will be crowd funded

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  Crowd funding is emerging as as popular tool for raising solar capital. Image: Mosaic.

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Ben Willis

For solar industry players across the globe, accessing capital for new technologies and projects is a perennial challenge. Banks, institutional investors and big hitters such Google have been hitherto reliable sources of capital for renewable energy. But with solar in the US alone having seen a 33% decline in investment since 2011, according to analysts Cleantech Group, it is clear they cannot be relied upon forever.

News last week offered a ray of hope to an industry looking around for new ideas. California-based start-up Mosaic announced it had raised over US$300,000 in less than 24 hours from 400 separate investors to finance four solar projects in New York and California. This takes the total the company has raised since it began operating last year to over $1.1 million, which it has used to fund 12 solar projects across the US.

Mosaic uses a method known as crowd funding, marrying the power of the internet with the inherent interest of the general public in clean technology. In a nutshell, the company identifies projects it deems suitable for investment, loans the developer money to finance the project and then invites the public to invest money through its internet platform to pay for the loan. Participants can expect a 4.5% return on their investment, the company claims.

“Ninety-two per cent of American’s think we should develop and use more solar; it’s the most popular energy source in the country. But there are major barriers to people adopting it,” says Billy Parish, Mosaic’s co-founder and President.

“We saw there was a need to give people things to do to address the climate crisis other than click a button and send an email to your congressperson; people actually wanted to be more deeply involved. And we also saw this huge asset class [solar] that had been bank-only for decades, and a huge transition coming in our energy mix, and we wanted to enable people to profit from it and to participate in it and accelerate driving it forward. Those were the motivations."

And Mosaic is not alone in recognising the potential of crowd funding for solar. Another US company, SunFunder, has developed a similar model that it is rolling out in emerging, off-grid markets, where demand for electricity is growing, but supply only patchy.

“The market we’re focused on is where people need solar energy the most, but also where people are paying the most money for energy,” says SunFunder’s co-founder Ryan Levinson. “People spend an enormous percentage of their income on dirty and low quality fuels, such as kerosene, diesel, car batteries and candles. In those cases solar energy is incredibly affordable, and there are solar businesses all over the world now providing affordable solar solutions for off-grid markets. But the biggest challenge here is a lack of access to financing.”

Levinson says SunFunder is trying to bring new sources of capital into these markets using a similar model to Mosaic’s. It identifies and vets suitable projects, raises capital through an internet-based crowd funding platform and loans the solar business the money it needs. Investors are paid back within only a few months.

Since its launch last summer, SunFunder has launched four solar projects – one in the Philippines, one in Tanzania and two in Zambia. The Philippines, Tanzania and one of the Zambia projects have been fully funded, while the second Zambia project is around two-thirds funded.

Levinson believes that in the developing world, there is huge potential for a model such as SunFunder’s that brings capital into off-grid projects. Around 1.5 billion people in the world have no access to electricity, but a large chunk of this group – around 600 million, he says – now use mobile phones, meaning, at the very least, that there is enormous and growing demand for solar facilities to enable people to charge their handsets.

But will crowd funding ever be more than a small player in the multi-billion dollar global industry that solar has become? The projects both Mosaic and SunFunder have backed have so far been relatively small – Mosaic’s largest to date, for example, has been a 102kW installation on an affordable housing complex in California. Can small investments from individuals really add up to the billions the solar industry is hungry for?

According to Ron Pernick, Managing Director of analyst firm Clean Edge and author of the book Clean Tech Nation, there is enormous potential in the solar and clean technology industries for new retail investment models aimed at small-scale investors. These would be distinct from the bank/institution-led investment models that have dominated so far, but could still potentially bring hundreds of billions of dollars into the industry.

Two models Pernick particular favours, and which he explores in his book, are ‘master limited partnership’ (MLPs) and real estate investment trusts (REITs).

Pernick says MLPs have been “incredibly successful”, leveraging around US$100 billion into the natural gas industry, but would require a congressional act to open up to clean tech. Meanwhile, as the name suggest, REITs are targeted at the property industry, but could be adapted for clean technology, were the IRS to make some tax code adjustments. But with some relatively straightforward legislative changes (which in the case of MLPs are already under discussion in congress), Pernick believes MLPs and REITs could open up a whole new class of retail investment for the clean technology industry.

Crowd funding would fit into the paradigm Pernick describes, but as to whether it will ever become more than bit player, he is unsure. “Crowd funding is a bit of the Wild West. It’s something that’s new, and it could have a huge impact on how individuals invest, but I’d like see how it unfolds,” he says.

“There are questions over transparency and whether the companies you’re investing in are really working with the best projects – for an investor, you’d really want to be assured of that. And will crowd funding be able to scale up? Mosaic has had a modicum of success, but now it will have to see how it can keep going and whether it can build a market that investors feel comfortable with.”

Levinson and Parish both insist the model they have separately pioneered is more than capable of scaling up. Levinson reveals that he is already in discussions with some large investors, government foundations and institutional investors about raising funds for off-grid solar projects. His hope is that by starting small and demonstrating the attractiveness of solar investment, SunFunder can encourage bigger investments in bigger projects.

“Anywhere in the world, solar can be a really great investment; the technology is very mature and can be stable financial asset with solid returns – that’s been proven. Then there are people around the world who want to be involved in funding these kinds of projects,” he says.

Parish echoes this: “It’s enormously scalable. And as liquidity in marketplace grows, as we have more investors and as the amount we can raise in a day grows, we will be putting bigger projects up. The internet has only just begun to be used in the clean energy space, but I believe we will be an important part of democratising those industries by allowing people to become financiers of clean energy. And that can only be a good thing.”