“Green Bond” Crowdfunding for Solar Projects by Green for Green
Pitch
Crowdfund up-front capital expenses for solar installations at qualified sites
Description
Summary
Solar electricity is a demonstrated way to provide deep cuts in greenhouse gas emissions from electricity generation when and where it is used, but it is not yet widely adopted. One key reason for this is the high up-front cost of such systems, providing a barrier to many families and communities which would be willing to support and adopt the technology if they had the initial capital. The initial costs are dropping more quickly than many realize, but the initial capital requirements can still be prohibitive.
Some installers are finding innovative ways to finance this up-front cost, such as an installer providing financing and guaranteeing the customer financial savings [1]. Bank loans are also available, and some cities offer loan programs at no or low interest for energy efficiency and renewable improvements [2]. Innovative companies like SolarMosaic allow individuals (though in some states, only accredited investors) the opportunity to invest in income-generating solar projects when they do not have an appropriate site to put up an installation directly, and people have good reasons to, as touched on in a recent article “Why Your Neighbors Will Finance Solar Panels for Your Roof” [3]. Crowdfunding loans to individuals to finance profitable improvements in a community, such as jumpstarting local businesses, is already being tested and proven out on sites like Kiva Zip [4].
This proposal follows on those concepts and feasibility demonstrations, proposing crowdfunding finance for solar installations, beyond installations at municipal or business locations as is the focus of some current platforms, and at least initially with a US focus, contrasted with current platforms that focus on other countries. Existing platforms, while not exactly the same as this proposal, help demonstrate the viability of this ideas and show that most of the basic elements are already available, but need to be combined and adapted to a new context.
Category of the action
Reducing emissions from electric power sector.
What actions do you propose?
This proposal is for the creation of a platform on which the capital investment required for solar projects can be aggregated from individual investors, using “tipping point” methodology now common on crowdfunding sites, to allow these projects to happen and to provide a return (with caveats discussed below) for the investors who support projects.
A National Labs report on “historical trends in the installed price (that is, the up-front cost borne by the system owner) of grid-connected PV systems in the United States” using data until early 2013 finds 40% drops in the costs of fully-installed system costs between 2008 through 2012 and data suggests this “precipitous decline” in prices continues [5]; prices have dropped by more than 50% over the past 3 years (into 2014) [6] and by more than 80% over the 5 years closing in 2012, according to a leading CEO in the energy field [7].
In May 2014, President Obama announced his intention to take executive action promoting innovative financing for deploying solar, demonstrating political will and priority to addressing the issue that this proposal addresses. This announcement noted that “Last year was a record-breaking year for new solar installations, and the amount of solar power installed in the United States has increased nearly eleven fold – from 1.2 gigawatts in 2008 to an estimated 13 gigawatts today, which is enough to power more than 2.2 million American homes.” It specifically identified that a barrier to tapping the full potential of solar is making it accessible to individuals, such as homeowners who don’t necessarily have enough liquid capital to cover the full up-front costs [6]. Some installers such as Astrum or SolarCity offer financing directly or through partner banks (e.g. Enerbank), but this can limit options in the marketplace, and the cost of this financing can be high as potential customers have very few alternatives.
Individual solar systems can have a lot of short-term variance in their output, but this variance quickly decreases when many systems in an area are tied together across a grid, to the point where dominant factors such as the day/night cycle and cloud cover can be predicted and managed. If combined with storage, which is becoming more cost-effective and less risky (e.g. with Aqueous Hybrid Ion technology now coming into production [8]), the variance is even more manageable, and solar as a whole currently constitutes only a tiny portion of US energy generation, with much room to grow. According to the Energy Information Administration’s latest Short Term Energy Outlook, continued robust growth in solar electricity generation is expected, with utility-scale generation growing by 88% 2013-15 but still to reach only 0.5% of generation. Customer-sited PV capacity growth is expected to be greater [9], though EIA does not predict specific numbers and those numbers may depend on a solution like this to the initial capital challenges. If a solution like this makes solar accessible to many more people, the 95% reduction in electricity-related emissions could be large enough to make a meanningful impact on emissions.
Other work and platforms already in use help demonstrate the viability of the basic ideas in this proposal.
Crowdfunding is closely connected with impact investing, investments made “with the intention to generate measureable social and environmental impact alongside financial return,” though certain regulatory challenges persist [11]. Sites like Citizinvestor, Spacehive, GroundUP, Neighbor.ly, UrbanKIT, and others offer crowdfunding platforms specifically for civic and community improvement projects, in addition to broader platforms like Kickstarter. An IndieGoGo campaign for solar roadways raised over $2.2M in donations while proposals were being developed in this contest [12]. In contrast, loan structures magnify impact by allowing crowdfunders to recycle their capital through more installations.
More directly related, Kiva-inspired [10] Lumo France aggregates individuals’ investments into partial funding for a small number of hydro, solar, and wind projects on businesses and local government buildings in France, alongside bank loans. So far, the site has funded €15K in contributions to two large (€66K/20kWp and €105K/35kWp) solar projects with a total of 80 15-year investments ≥€25 at 4.5-5% APR.
Abundance Generation provides crowdfunding (minimum £5) for “wind, solar, anaerobic digestion, and hydro projects at various stages of development, and aims to offer a new project for investment every 1-2 months.” 7 projects have been funded so far, offering transferable 20-25 year Debentures at 6-9% IRR which is in some projects based on production. Two wind projects each raised around £1.5M and 5 solar projects raised £216K - £896 on this platform. Returns come through Feed-in-Tariff and Power Purchase Agreement payments.
Germany-based Green Crowding is a crowd lending website for a wide range of sustainability projects including efficiency initiatives, experimental renewables, and established renewables, though as of August 13, 2014 the site lists only two completed and one future investment opportunity.
Some related external proposals are discussed above, and at [13]. As of the time of writing, at least outside California, only accredited investors may fund projects on SolarMosaic [14], [15] or CrowdSun [16]. However, there is proven high interest in participation: SolarMosaic’s first four projects sold out in under 24 hours [17]; it is moving toward home installations.
SunFunder issues Solar Empowerment Fund Notes only to accredited and institutional investors, but allows all others to contribute to crowdfunding other projects with interest that can be reinvested but not withdrawn [18], which may be a necessary approach in this proposal for regulatory compliance. SunFunder’s projects to date have been primarily in East Africa and India, and their May 2014 Series A investment led by Khosla Impact demonstrates the focus on market-based solutions to poverty and development rather than on minimizing emissions from the electricity sector [19].
Power REIT, a thinly traded security under ticker symbol PW, owns land underneath railroads and under utility-scale solar projects, including one of the largest solar farms in New England (at 5.7MW) and an additional 20MW of under-construction farms in CA [20]. However, it does not provide a public way for individuals to invest in the solar projects directly, and requires brokerage fees that could block the valuable “long tail” targeted by crowdfunding. IRS regulations currently under consideration would make REITs a good vehicle for sharing direct investment in solar property, and specialized platforms may be able to lower the transaction fees that individuals encounter as compared with traditional brokers, if that regulatory vehicle turns out to be most appropriate, among available options.
Who will take these actions?
One or more startups (which may include startups already in this space, from the US or abroad) would build platforms to coordinate capital, connecting projects with aggregated investments, and making appropriate payouts. The platform steward would also provide marketing, help coordinate regulatory advocacy if/as needed (see also “Costs” section below), and facilitate project management, including collection and dissemination of best practices for projects on the platform.
Many crowdfunding platforms which fund renewable energy projects have a very small number of large projects, often hosted on businesses or municipal buildings (such as schools), owned by associations that often have access to other institutional capital sources, such as having the authority to issue bonds. Therefore, these existing sites do not solve the problem of making solar accessible to individuals who are willing to host it on smaller (but still economically efficient) sites, such as a residential or farm property. Loans to individuals may be individually risky, but there are ways of offsetting these risks, such as diversification (easier to do when there are many small projects on a platform, and optionally enforceable by investment maximums), collateral (the renewable generation equipment), and combining crowd finance with bank financing as demonstrated in Lumo [21] or Kiva Zip [4], so that each investor could feel that the leverage of their contribution was increased by partner matching, and to consolidate payment servicing. Risk can be further reduced where regulations and local utilities permit on-bill financing for solar projects, or where the regular payments for power generated can be routed directly from a utility company back through the platform to investors, with hosts’ payment activity affecting only their own relationship with the utility company.
Where will these actions be taken?
This proposal has a geographic focus at least initially in the United States, for practical purposes mostly excluding Alaska. It build on proof of concept models from the US and Europe, though the concepts are ultimately not limited primarily by geography. The US is chosen for its greater solar resource due in large part to its lower latitude than Europe, while having very similar total energy demands to the EU-28 ([22], [23]), a relatively well Internet-connected population which has demonstrated comfort with relevant Web technology and crowdfunding, relatively consistent financial regulations across the large energy market, and demonstrated political will to address what regulatory issues may remain open.
The intention is to incentivize solar installations only in places where it is economically productive, such as unshaded ground or new roof area permitting panels to face South. Some installations may be in northern or eastern areas with less solar resource than e.g. the Southwest, but may still attract investors seeking local impact or offsets to emissions at local power plants (thus having a potential impact on the air quality experienced by investors personally); other investments at sites more optimal for solar resource will presumably also attract investors looking for the higher returns there, and/or as part of a diverse portfolio.
Relevant networks in Europe: Renewable Energy Sources COOPeratives provide one model of local community ownership of renewable resources; Citizenergy also focuses on decentralized citizen ownership of renewable energy projects. The platform proposed here would encourage, but not focus primarily on, contributions to local projects. The European Crowdfunding Network works on figuring out standards, regulation, legal, and scientific research aspects of crowdfunding, and could be a useful resource to draw on (e.g. [11]).
How much will emissions be reduced or sequestered vs. business as usual levels?
Generating power from photovoltaics produces no emissions at the point of generation or use, but emissions are generated in the process of producing, installing, and maintaining the panels, specifics of which vary between projects and technologies.
A 2012 study by the National Renewable Energy Laboratory (NREL) reviewed life cycle assessments, analyzing published results from over 400 studies of PV systems, finding life-cycle greenhouse gas emissions similar to other renewables and nuclear, and much lower than e.g. coal (≈95% less) [24].
What are other key benefits?
People who invest or run projects through the platform may feel a sense of civic good and improving their communities, experiencing benefits similar to those motivating zero-interest loans on Kiva Zip. Global security and stability could also improve from decreasing reliance on oil traded on international markets and fueling conflicts. Local distributed generation resources can promote resilience in the wake of natural disasters (e.g. Superstorm Sandy) or interruptions in the supply chain for other fuels, especially when paired with some storage [25].
The idea could later be used for projects beyond photovoltaics, such as CSP, solar-hot-water, or beyond solar to include energy efficiency measures that have a clear economic return on investment. The examples used in this proposal focus primarily on photovoltaics to be more specific, concrete, and as more focused starting point reducing the number of different project properties and evaluation dimensions that might need to be considered.
What are the proposal’s costs?
Because the proposal is taking advantage of profitable opportunities that generate surplus for those involved, it would be expected to produce net profit. However, up-front work will be needed to develop specific screening criteria, contracts, and economic vehicles for this to become a reality. Existing forms such as the LP, LLC, REIT, accounts held by a platform firm, and other approaches have trade-off costs and benefits within the existing regulatory structures are best analyzed by expert attorneys and accountants, the cost of whose time is not yet quantified. Marketing costs will also be incurred, with specifics depending on channels and volumes chosen.
Regulatory aspects of the proposal still need input and development from relevant professionals, which is a cost of further developing the proposal. Regulatory actions may be needed to streamline permitting and reduce “soft costs” of such projects, without removing the important protections such processes provide [7]. Regulatory changes are already in progress intending to make crowdfunding and broadly shared ownership of solar installations possible and political will has been demonstrated to support further sensible changes if necessary; changes may be in place by the time this proposal is implemented to simplify those regulatory questions. Creative solutions from platforms like Kiva Zip and SunFunder suggest that solutions can be found.
Time line
August 12, 2014 marks the due date for public comments and requests to speak (on September 18) about the IRS’s REG–150760–13 [26].
Following the 2014 CoLab conference Nov. 5-7 2014 (if this proposal is a contest winner), a “Renewable Cities” conference of city leaders from around the world will be held May 13-15, 2015 in Vancouver and could be a good next venue for continued work.
Especially where existing work can be leveraged, a small team might be able to get a platform in approximately one year, which may include adaptation of existing technology from comparable sites. This allows time for working out legal and contractual details, adapting technology such as a website, database, and interface, finding appropriate pilot projects and lead investors, forming appropriate partnerships, and generating publicity. Investment terms would last for a few decades each, in line with expected lifetimes of equipment.
Related proposals
A 2013 semi-finalist had a similar basic idea, not as well developed: https://www.climatecolab.org/web/guest/plans/-/plans/contestId/23/planId/1304257
Another 2013 semi-finalist attempted to address the up-front costs of solar through fund-pooling & community wholesale, but details highlighted financial support through increasing sales tax:
https://www.climatecolab.org/web/guest/plans/-/plans/contestId/10/planId/1304511
A 2014 semi-finalist in a different contest pairs special PACE bonds with a proposed carbon tax:
https://www.climatecolab.org/web/guest/plans/-/plans/contestId/1300404/planId/404
Another 2014 semi-finalist in this contest, regarding the Path To Zero in cities (incl. large residential complexes), does not currently address the question of where upfront capital for efficiency-focused return-generating projects might come from other than “reshuffling various cash flows in the neighbourhood:”
https://www.climatecolab.org/web/guest/plans/-/plans/contestId/1300201/phaseId/1300638/planId/1307701
References
[1] Astrum Solar, “Free Solar Installation: Pay Nothing to Switch and Save Thousands.”
[2] Urban Redevelopment Authority of Pittsburgh, “Home Improvement Loans.”
[3] T. Woody, “Why Your Neighbors Will Finance Solar Panels for Your Roof.” The Atlantic, 16-Apr-2014.
[4] Kiva Zip, “Innovations in person-to-person lending.”
[5] G. Barbose, N. Darghouth, S. Weaver, and R. Wiser, “Tracking the Sun VI: An Historical Summary of the Installed Price of Photovoltaics in the United States from 1998 to 2012,” Lawrence Berkeley National Laboratory, Jul. 2013.
[6] The White House, “President Obama Announces Commitments and Executive Actions to Advance Solar Deployment and Energy Efficiency,” Fact Sheet, May 2014.
[7] D. Crane and R. F. Kennedy Jr, “Solar Panels for Every Home,” The New York Times, 12-Dec-2012.
[8] K. Fehrenbacher, “Behind the Scenes of Aquion Energy’s Battery Factory & the Future of Solar Storage,” GigaOm, 20-Jul-2014.
[9] U.S. Energy Information Administration (EIA), “Short-Term Energy Outlook,” 08-Jul-2014.
[10] European Crowdfunding Network, “Team.”
[11] Toniic and European Crowdfunding Network, “Crowdfunding for Impact in Europe and the USA.”
[12] N. K. Gerianos, “Idaho Inventor’s Solar Roadway Idea Draws Millions in Crowd Funding,” Star Tribune, 12-Jul-2014.
[13] Sandy Dechert, “Here Comes The (Third) Solar Crowdfund: CrowdSun,” CleanTechnica.
[14] “Who can invest through Mosaic’s platform?,” Mosaic Help Center.
[15] US Department of Energy EERE, “Solar Energy Resource Center: Ask an Expert,” 05-Mar-2013.
[16] CrowdSun, “How CrowdSun Works: Accredited Investors Funding Solar Projects,” 20-Jul-2014.
[17] A. Burger, “Mosaic’s First 4 Solar Energy Crowdfunding Projects Sell Out In Under 24 Hours,” CleanTechnica, 09-Jan-2013.
[18] SunFunder, “SunFunder Investors.”
[19] “SunFunder closes Series A investment led by Khosla Impact.”
[20] D. H. Lesser, “About Power REIT,” 20-Jul-2014.
[21] Lumo France, “Investment Model.”
[22] U.S. Energy Information Administration, “Monthly Energy Review: Table 1.1 Primary Energy Overview, 1949–2012,” Jul. 2014.
[23] European Commission and Eurostat, “Consumption of Energy,” Statistics Explained, Apr-2014.
[24] National Renewable Energy Laboratory, “Life Cycle Greenhouse Gas Emissions from Solar Photovoltaics,” National Renewable Energy Laboratory, Nov. 2012.
[25] K. Bailey, “Battery-Based Solar Electric Systems - Part 3: Battery-Based Solar Electric System Market,” Aquion Energy Blog. 02-Jul-2014.
[26] US Internal Revenue Service, “Reg–150760–13: Definition of Real Estate Investment Trust Real Property,” Internal Revenue Bulletin, vol. 2014, no. 23, 02-Jun-2014.
By:
Green for Green
