Solar Crowdfunding: In Need Of A Kickstart

Solar power is going intergalactic.
In an announcement late last month, SolarCity, the country’s largest installer of rooftop solar arrays, announced that private space company SpaceX had scooped up $90 million of its corporate bonds.
The marriage—no doubt blessed by Elon Musk, the entrepreneur at the center of both companies—is partly one of convenience. On the company’s blog, SolarCity Vice President Tim Newell noted that the transaction helps SolarCity “to raise capital at lower cost” while affording SpaceX “the opportunity to earn significantly higher returns than those offered through comparable investments.”
More than that, though, the move represents a clever bit of cross-marketing. And the fact that SolarCity sought to gin up this press suggests that demand for its bond offering—and others like it—has not yet skyrocketed.
The corporate debt in question is an innovative new product from SolarCity known as Solar Bonds. Solar Bonds allow an investor—be it an individual or an organization—to generate a rate of return from the solar power systems SolarCity is installing across the country. At its most basic, the investor lends SolarCity money, SolarCity uses the money to install an array on a household, the household pays SolarCity for the array, and the investor gets paid back, with interest.
The Solar Bonds program, which SolarCity launched in 2014, is a close cousin of the other solar crowdfunding platforms that have blossomed in recent years. One of the many offshoots of the rise of the so-called “sharing economy,” these platforms allow the average household to chip in a few dollars toward a renewable energy project. There is Mosaic, which has a portfolio comprised of commercial and residential projects in the United States; Sunfunder, which focuses on off-grid markets in developing countries; and CollectiveSun, which finances arrays for nonprofits that struggle to meet traditional underwriting criteria.
These platforms hold the promise of democratizing access to solar. According to the National Renewable Energy Laboratory, approximately three out of four households in the United States cannot install a solar array on their own property. And so if we believe, from a normative point of view, that any household should have the opportunity to participate in renewable energy, then we need to create avenues for participation above and beyond rooftop solar. Alongside increasingly diverse options such as community solar, equity investments in clean energy companies, and green power purchase programs, solar crowdfunding can be just such an avenue.
As it stands, however, solar crowdfunding possesses more potential than kinetic energy. According to its website, Solar Mosaic has funded approximately $10.5 million in support of solar projects across the country. By comparison, Citigroup recently announced that, by 2025, it plans to finance an additional $50 billion worth of clean energy projects.
Several factors lay behind the limited participation in crowdfunded projects to date.
First, consumers are limited by barriers to entry. In the case of SolarCity, would-be participants face an upfront capital requirement—an investor must purchase at least $1000 in Solar Bonds to play ball. While the Mosaic platform offers a modest minimum investment, it is, with limited exception, available only to accredited investors (i.e. households with high net worth).
Second, from the vantage point of the consumer, there are material risks associated with crowdfunded projects. These include the possibility that the borrower will default, that interest rates will begin to climb again, and that the investment proves illiquid.
Third and related, crowdfunding projects may not be sufficiently differentiated from other investments in renewable energy. Put another way, what is it about solar crowdfunding that makes it more compelling—economically, socially, or environmentally—from other options to go green? (In this, the clean energy industry is a victim of its own success; the dizzying array of options now available to a consumer means that each option must compete harder for a consumer’s marginal dollar and hour of time.)
Surmounting these barriers will require that solar crowdfunding be made more compelling to more consumers.
At the most basic level, this begins with winning the trust of consumers. The leading players in this space, attentive to this fact, are taking great pains to ensure that households that take part in solar receive the bargain they are promised. The more relevant variable, in this case, is time. With residential solar itself still in its adolescence, little wonder that the offspring of that market, such as solar crowdfunding, strikes the average household as newfangled.
One way in which solar crowdfunding can compensate for being a new product is by being a better product. If they are to gain traction, providers must strive for an offering so attractive that a typical investor will prefer it to alternative fixed-income securities. Here, too, progress is being made. SolarCity, for instance, recently updated the Solar Bonds offering to include higher rates of return, more flexible terms, and the ability to purchase the bonds with existing bank accounts.
Finally, the set of households who can participate in solar crowdfunding should be broadened—within reason. The fulcrum on which this debate rests is the 2012 JOBS Act. One of the intents of the legislation is to expand the pool of consumers who can participate in crowdfunding, and this effect is likely to ripple through the solar industry. In setting the rules of the road, the SEC should balance this impulse to open profitable investments to more people with the need to protect the public from snake oil salesmen.
In sum, solar crowdfunding has come a long way in a short amount of time. But as the marketing play by SolarCity and SpaceX underscores, more progress is required for it to truly achieve its potential.

Steve Moilanen is the Co-Founder and CEO of Solstice Initiative, a social enterprise dedicated to expanding access to clean energy in the United States.


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