Direct investment in renewable energy projects has been an anticipated financing option among editorialists and bloggers the past year, and seems to finally be gaining traction in the United States.
The idea that individuals would network and pool money for a common goal is not a novel concept. The American Red Cross has long employed this method to assist in disaster relief. Kiva has raised money for microloans to small businesses in developing economies. More recently, platforms such as Kickstarter and Indiegogo have made crowdfunding a popular way to raise money for entrepreneurs.
Crowdfunding has already expanded to renewable energy projects through donation-based platforms. However, due to securities regulations in the United States (and sometimes securities regulations in other countries because of the international nature of crowdfunding) companies typically do not provide investors interest on their investments. Therefore, these projects often rely on investors who are investing for social impact and goodwill rather than return on investment.
Some crowdfunding platforms have engineered inventive ways to provide added incentive to investors. SunFunder, for example, does not currently provide interest to investors due to the challenges of securities regulations. It instead has a program that allows investors to earn points that can be applied towards their next investment, thus increasing their investment impact and their principal return.
The enactment of the Jumpstart Our Business Startups Act (the “JOBS Act”) last year may alleviate this hurdle to attracting investors. The JOBS Act was designed to stimulate job growth and small business growth by relaxing federal securities regulations to make it easier and less costly for smaller companies to raise capital in the United States. For instance, among other changes, the JOBS Act will allow issuers to raise up to $1 million from a large number of accredited and unaccredited investors by selling securities through a broker or SEC-approved funding portal. Although some key sections of the JOBS Act still require rule writing from the SEC to become effective, once implemented the new regulations could deepen the pool of available investors.
Pending full implementation of the JOBS Act, Mosaic, an Oakland, California-based company, has started offering online investors the opportunity to invest in solar projects for a profit. Each project is described in a prospectus prepared in accordance with the SEC’s disclosure requirements, and each investment is structured as a loan with a “Solar Power Note” that will be paid back with interest as the project earns revenue. When the company launched its solar crowdfunding site in January 2013 its first four projects were sold out within 24 hours, demonstrating the potential market for these investments. Currently Mosaic is raising capital from accredited investors and, by working with state securities laws, residents of California and New York. Although the company is currently focused on solar investments, it may expand to other renewable projects some day.
Internationally other companies are also using a profit-generating crowdfunding model, such as in France, Germany and the United Kingdom.
Although it is too early to tell whether crowdfunding of renewable energy projects will ever produce the millions of dollars that institutional or corporate developers provide, it is already starting to provide individual investors a new opportunity to invest in these projects, and may provide renewable energy entrepreneurs another source of investment.