Solar crowdfunding trend is heating up

Finance and technology companies are making it easier to vote with your wallet for renewable energy by letting people and businesses invest directly in solar.

Earlier this week, solar installer SolarCity said it will offer individuals and institutions a bond-like product backed by the cash flows generated through SolarCity’s existing distributed solar customers. Aimed at individual, rather than institutional, investors, the new product is a twist on crowdsourcing, a model already used by Oakland, Calif.-based SolarMosaic. That company allows people to invest small sums toward specific projects that need financing, such as a rooftop solar array on a store. By aggregating money and connecting them to projects, it’s financed more than $5 million worth of solar projects.

The two companies differ slightly in their approach, but both have the goal of making solar more readily available to retail investors. For the solar business, it opens up a wider pool of capital, which translates into more funding for new solar installations. "To SolarCity, this is just another mechanism to finance projects and lower the costs," said Shayle Kann, an analyst at GTM Research. "I wouldn't be surprised to see other big national solar companies doing the same thing."

SolarCity's approach

SolarCity on Wednesday acquired a small company called Common Assets, which did the financial analysis to create the bond-like products and developed a software platform to offer them. People don't purchase a share and one specific project, as Solar Mosaic does. Instead, SolarCity plans to offer investments backed by a pool of existing solar projects, explained Tim Newell, who is joining the company from Common Assets as SolarCity’s vice president of financial products. 

Within finance, there’s a trend toward giving individuals direct access to different investment categories, Newell said. Kickstarter, for example, lets people invest in technology ventures. But it's happening in other areas, too, such as auto financing or student loans. "SolarCity is taking advantage of that innovation in financing and bringing it to the solar industry. The new and diverse sources of capital over time should lower the cost of capital and enable us to offer clean power for less and to more people," Newell said. 

The company intends to offer its first direct investment product as early as the first half of this year, but it won’t disclose specific terms, including who will be able to invest and what kind of return they can expect. Newell projects that SolarCity will be able to finance billions of dollars worth of solar this way.

One challenge with introducing financial products backed by solar is that, because they’re new, they require regulators of different states to sign off on them. “It’s the early stage in community solar and we are really trying to figure out which business models will be suitably acceptable to a broad set of stakeholders so they won’t get blocked,” Solar Mosaic’s chief investment officer said at an industry conference last month.

Consumer and business appeal

SolarCity is betting that many consumers who can't have solar panels installed on their own rooftops will want an alternative way to put their money toward solar. Businesses and organizations, too, can invest in a way that's "consistent with their values," Newell said.

"We'll have a variety of financial products and we intend to have ones that are appropriate for people who might have a small amount of capital that they want to invest in products that are suitable for institutional investors, such as community banks, which may have larger sums," he said.

To some degree, the creation of solar investment products for retail investors reflects how solar has become more commonplace in many states. The bigger pool of solar assets has created a stream of revenue around which financial products can be built. Already, people invest in commercial real estate through real estate investment trusts, noted Kann. "If you can get people comfortable with (solar) assets and make attractive returns, they won't look so dissimilar," he said. "The question is: Is there enough demand for it?"

Solar panels photo by Idambies via Shutterstock