Crowdfunding solar power allows companies to diversify and expand their capital sources but requires careful risk management, according to a panel called "Crowdfunding for Renewable Energy Projects: How Big Could It Be?" at the Bloomberg New Energy Finance Future of Energy Summit on April 8.
"I think it's going to explode," said Lee Bailey, managing director and co-managing partner at US Renewables Group. "Conventional areas of financing have proven difficult and expensive. The pools of capital have dried up significantly."
Tim Newell, vice president of financial products at SolarCity, told the audience they’d be surprised to see how much capital crowdfunding would raise for solar power within the next few years.
This development echoes a larger trend toward crowdfunding in financial markets, said Newell. "Individual investors play an important role within the capital markets. We have lived within a bubble that has been isolated from the changes within the capital markets."
Growth and Diversification
SolarCity has pursued crowdfunding to diversify its capital sources and become more resilient, Newell said. "We wanted investors that are backed by large pools of assets."
Newell said Bank of America, Google and other organizations are investing in SolarCity’s crowdfunding activities. "Some time in second quarter, you should see products from SolarCity."
One of the advantages of crowdfunding is that it can create opportunities for new categories of investors to participate in the solar market.
"You have to look at this as a variegated pool of investors," Newell said. "There are people who are targeting different pools of investors within that range."
"We have some customers who do detailed work, which suggests they have a financial background," said Louise Wilson, co-founder of Abundance Generation.
SolarCity is expanding its crowdfunding activities to Africa, Newell said. He said replacing kerosene with solar power is highly valuable, providing advantages to local communities, businesses and the global climate. “Kerosene is a terrible energy source from a health perspective. It's a terrible source from a climate perspective."
Risks and Costs
The moderator, William Young, summit program director at Bloomberg New Energy Finance, compared solar crowdfunding to raising money for entertainment and horse racing.
Bert Hunter, executive vice president and chief investment officer of Connecticut’s Clean Energy Finance and Investment Authority (CEFIA), took a different perspective. "It's not race horses," he said. CEFIA’s investors receive a note that is backed by homeowner loans. Sungage Financial arranges the financing. Then, CEFIA pushes that funding through the Mosaic platform and aggregates it.
"Chances are, that's going to be protected through our risk attenuation process to protect the individual investors," Hunter said.
Wilson said managing investor risk is crucial for her company. "We won't distribute a project to customers unless it falls at the lower end of the risk spectrum," she said. "We're building a brand and we want people to have confidence in that brand so that they can make decisions based on the risk and returns."
Solar "ranks at the top in terms of quality of finance," Newell said.
To make crowdfunding attractive to investors, companies must also manage their costs carefully.
"We are pretty aggressive about lowering our capital costs," Newell said. "The focus is on soft costs."
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