How Crowdfunding Solar Power is Democratizing
by Lyndsey Gilpin
Crowdfunding campaigns for solar power are gaining traction.
Pioneering startups like Mosaic are changing how we finance renewable energy.
Ten years ago, Billy Parish visited the shrinking Gaumukh Glacier, a source for the Ganges River that provides 450 million people in Asia with water. Someone told him during the tour that a few years before, he would have been standing on a significantly larger glacier, but by 2030, the entire formation would be gone.
After the trip, Parish was about to start his junior year at Yale. Instead, he dropped out and founded the Energy Action Coalition. By the age of 21, he was running the largest youth organization working on clean energy solutions in the world. Rolling Stone named him a "Climate Hero."
A few years ago, Parish and his now-co-founder Dan Rosen envisioned a "Kickstarter for solar" when they realized it is estimated to cost trillions of dollars to power the infrastructure of the world with 100 percent renewable energy.
"We soon recognized that the transition from fossil fuels to clean energy represented perhaps the largest wealth creation opportunity of the century," Parish said. "There's enormous demand for investments with these characteristics but no real platform to make investing in them easy."
The two men decided to change that with a startup called Mosaic, a web platform that allows investors to fund various solar power projects.
"For me, Mosaic represents one of the biggest business opportunities and one of the biggest climate solutions on the planet," Parish said. "To be able to work at the center of the venn diagram of those two circles is pretty incredible."
Crowdfunding: Changing the solar power equation
Less than 24 hours after Oakland-based Mosaic allowed crowdfunding campaigns in January 2013 in which investors could pitch as little as $25, they raised enough money to fund four clean energy projects in California for affordable housing projects. More than 400 investors raised $313,000. The investors, on average, paid about $670 each.
Last week, Mosaic launched a new platform on their site, allowing people to finance solar arrays on homes, in addition to the commercial projects already being funded. Since its initial launch in 2010, company has raised more than $7 million in investments through crowdfunding with a 100 percent payback rate. In its seed rounds, Mosaic raised $3.4 million from venture capitalists. In 2012, Mosaic received a $2 million grant from the Department of Energy.
The biggest project to date is installing solar panels on 1,500 military homes in Fort Dix, New Jersey. Another successful project included installing a solar roof on Pinnacle Charter School in Denver, Colorado, which doubled as clean energy education for the students.
Mosaic charges a 1 percent fee on each investment and a small percentage fee on each origination loan. Investors can earn a 4.5 to 7 percent return on rooftop power plants. The loans are typically paid back over 10 years. Investors pay a minimum of $25 to fund one of these projects, so most of the investments are small to medium scale. According to Mosaic, most of the projects cost a couple hundred thousand dollars and have an average of a couple hundred investors.
"Our projects are successfully financed because people want to know what they are investing in and Mosaic offers solar projects as transparent investment opportunities," Parish said.
Mosaic launched a new platform last week for residential solar roof projects, which allows people to lend and invest in solar systems whether or not they are able to actually use the power themselves. For instance, if their own roof is too shady or they are renting an apartment instead of owning a home, they can still be involved by loaning money to a solar project and earning a return on their investment.
Laws to regulate these are created on a state-by-state basis through virtual net metering, which is a tariff arrangement that enables a multi-meter property to allocate solar system credits to other tenants. Currently, only 11 states allow this:
"It lets you own a project," Jenkins said. "I do think it opens up investment in solar to a whole new class of people, like someone who wants to invest but can't have their own, they can invest in someone else's, and that's what might change things."
An array of crowdfunding models
"Solar is in some ways the ideal product here because there is very little risk involved once it is on someone's roof," Jenkins said. "It's a low-risk loan. It's pretty hard to break [solar panels] and maintenance costs are low, solar is free, and the investment sizes are pretty reasonable."
Over the last decade, companies like SolarCity and Sungevity have allowed owners to lease rooftop solar arrays. Solar Power Purchase Agreements (SPPAs) are financial agreements in which a third party developer owns and operates a photovoltaic system that a host has on its site. They purchase the electric output from a solar energy provider. The cost is usually slightly below an electric utility rate, according to the EPA, and the host pays only for what the system produces. The contracts can last anywhere between six and 25 years.
Federal and state governments offer tax credits and rebates for those who invest in solar power. The federal government allows a 30 percent deduction off solar system on tax credits, but this expires at the end of 2016. Solar module prices have fallen 80 percent since 2008 and almost a third of newly installed electricity generating capacity in the U.S. in 2013 came from solar power, which provides even more motivation for investing in projects, but it is still a largely untapped -- and lucrative -- market for most consumers.
"There will be pressure to cut the cost of solar projects, even though the costs of modules have fallen dramatically, they are a small portion," Jenkins said. "Installing and hiring labor and contractors, balance systems costs, wiring of converters, and electronics haven't fallen at the same pace."
Regulations by the Security Exchange Commission (SEC) have prevented Mosaic from allowing non-accredited investors in all 50 states to invest in their solar project offerings. Crowdfunding platforms like Indiegogo and Kickstarter, who offer projects in every state, are prevented from offering return on investments, which is why projects offer gifts or other paybacks. Title III of the Jumpstart Our Business Startups (JOBS) Act of 2012 is a step in the right direction, allowing an unlimited number of unaccredited investors without SEC registration to invest, and provided many investor protections. The JOBS Act affects companies that want people to crowdfund shares in their projects. However, Congress left much of Title III rulemaking up to the SEC.
"Mosaic is pioneering this in a lot of places, setting the precedent in clarifying rules in more and more parts of the country," Jenkins said. "There is a set of regulatory oversight. Crowdfunding is a new, gray area."
Because of ambiguous crowdfunding investment laws, companies are trying to navigate the murky waters through experimentation. Various models of crowdfunding, as well as several models of payback and return on investments, are being used.
A new example of this is Divvy, a New York-based startup founded by Rob van Haaren and Kyle Fricker, phD students at Columbia University's Center for Lifecycle Analysis. The platform is crowdfunding for renewable energy, with a specific focus on solar systems. Its two pilot projects in New York included a solar farm and a project exploring the synergy between green roofs and solar systems, and they do not offer return on investments, but they do want to offer discounts on utility bills and coupons and other deals for institutions that participate.
"We took a user survey where we gave different payback scenarios, and people said they would appreciate a reduction on their electricity bill, instead of payback with investors," van Haaren said. "The reduction would be proportional to what percentage of total project that you own." In the future, Divvy would like to expand into energy efficiency crowdfunding projects as well. "A teacher could replace light bulbs and the students would learn from experience," he said. "Education is very important and we have always had a focus on schools."
Part of this education program would be on their own platform: a system to monitor each investor's carbon footprint. The more projects they invest in on the site, the more they can see their carbon footprint lessen.
"The crowdfunding sector is fairly new and Mosaic was the very first big player for renewable energy," he added. "It's all still so new, and these innovations, the way you present these projects to people, makes a big difference to the success of the platform."
Wind farms, energy efficiency retrofits, solar arrays, and urban gardens are all possibilities of crowdfunding projects that could come from the influence of solar system funding platforms like Mosaic, Jenkins said. Here are some other startups funding solar power and other renewable energy projects:
Mosaic has been a pioneer in the business and energy sectors so far, and Parish plans to push that path even farther.
"Sometimes you blaze a trail that nobody follows, and sometimes you blaze a trail just to have others leave you in the dust, but just sometimes you do it well enough to inspire a movement to join together and make a powerful change," Parish said.
"We have the opportunity to democratize two of the biggest, most centralized and most destructive industries in the world -- energy and finance -- and if we're successful, we'll help create a world I'll feel good about my two little girls growing up into."
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