Renewable energy crowdfunding hits the runway

LONDON -- E-commerce visionary Elon Musk and British punk-fashionista Vivienne Westwood see eye-to-eye on a new wave in clean energy: You need to find investors online.

Musk is chairman of SolarCity Corp., a U.S. provider of solar energy to homes and businesses that plans this year to start seeking individuals to invest in solar projects via the Internet. Westwood is backing Trillion Fund, a web platform that seeks cash for wind and solar plants in the U.K.

On both sides of the Atlantic, clean-energy promoters are developing crowdfunding websites that promise to overcome investor skepticism about whether they can earn regular returns. Barely on the corporate radar three years ago, crowdfunding has mushroomed beyond social causes, film projects and garage start- ups toward companies with steady cash flows.

“With clean energy, you’re now seeing characteristics of actual investments -- specific returns with defined lengths of payment and professional management,” said Nathaniel Bullard, an analyst with Bloomberg New Energy Finance in Hong Kong. “You’re not just giving to money to something you believe in.”

That has attracted the interest of wind and solar farm developers, who already typically provide performance guarantees or availability guarantees. It’s also drawn the attention of researchers and regulators.

Britain’s Financial Conduct Authority is working up proposals to regulate the market and protect consumers beginning in April. Bloomberg New Energy Finance holds a seminar on crowdfunding in New York on April 8

European Scrutiny

The European Commission today said it isn’t preparing new legislation for the industry. Instead, it will raise awareness, encourage exchange of industry standards, undertake a study to explore market developments and establish the European Crowdfunding Stakeholder Forum that will provide advice. Despite having “real potential,” crowdfunding has risks, and a large- scale scandal could undermine confidence and stifle its growth, the report showed.

Across the Atlantic, the U.S. Securities & Exchange Commission in October proposed measures to regulate the crowdfunding market with rules set to be completed this year. Many of the funding sites are following Oakland, California-based Mosaic Inc., which entered into the clean- energy funding market in 2011. SolarCity, which bought online lending technology developed by Common Assets LLC, has a green track record with professional investors: It was the first U.S. company to complete a securitization backed by distributed rooftop solar assets.

Society Skeptics

Even with this new professionalism in the market, the green pitch is still being targeted to investors who are simply skeptical of The System. “We can’t leave this kind of clean investment up to governments, which are cutting their own debts and are only worried about winning the next election,” Westwood, who’s sold designer clothing under her own label for about three decades, said in an interview. “Nor can we leave it up to investment banks, with their short-term profit motivations.”

All types will raise $8 billion in 2014, according to forecasts from Crowd Capital Advisors LLC, up from $5.1 billion in 2013 and $2.7 billion in 2012. In Britain, the websites offer debt or equity in projects and in companies, with a minimum investment of 5 pounds ($8.40).

British Fundraising

Of the 51.2 million pounds raised in the U.K. last year, clean energy and environmental projects accounted for almost7 percent, Kieran Garvey, a spokesman from the U.K. Crowd Funding Association, said.

Trillion and Abundance Generation, another clean-energy focused platform, both made their first investment last year. They’re projecting 6 percent to 9 percent returns for investors. Projects go through reviews by the crowdfunding operators and must meet certain criteria.

“Investing in large renewable-energy projects through sites like Abundance and Trillion Fund tends to be less risky than investing in start-up businesses,” said Liam Collins, senior researcher at Nesta, a U.K. charity that researches and invests in social programs.

Abundance said it’s currently generating returns of 6.5 percent to 7.5 percent for its solar projects and 8.5 percent to 9 percent on its wind projects. It completed its fastest capital-raising so far in February, when it obtained 214,000 pounds in four days for a wind-energy project. Returns of 8.4 percent to 9.3 percent were promised over its 20-year life.

Dutch Position

In the Netherlands last year, 1,700 Dutch households raised 1.3 million euros ($1.8 million) in 13 hours to buy shares in a wind turbine. This has set a precedent which Garvey, from the U.K. Crowd Funding Association, thinks will be replicated in Britain this year.

Advocates of crowdfunding say it opens up investments that the public otherwise would have no access to. For the renewables industry, it provides a new source of capital for smaller projects that are denied bank financing. Skeptics argue it exposes unwitting investors to high-risk and unproven ventures that they might not fully comprehend.

“Although there is a lot of speculation about what the first crowdfunding scam will be, the negative stories have been surprisingly thin on the ground,” according to David Blair, partner and head of financial regulation at the law firm Osborne Clarke in London.

Westwood, who counts Baywatch star Pamela Anderson among her close friends, opened her first shop, Let It Rock, on London’s Kings Road in 1971. Later that decade, she and her partner at the time outfitted the Sex Pistols, an English punk rock band. In January 2003, she sent men down her catwalk wearing fake breasts under cashmere sweaters. She says clean energy won’t be a hit if left to professionals. “We have to start doing it with our own money.”

Copyright 2014 Bloomberg

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