Harnessing The Power Of Crowds For Community Renewables

by John Farrell, via Renewable Energy World

Back in April, President Obama signed the JOBS Act and one of the most-heralded elements was so-called crowdfunding. The law sought to solve a major problem: it’s hard to finance small-scale business ventures.  Wall Street only cares about multi-million dollar plays and securities regulations make small-dollar projects rather difficult (and costly) to jointly fund.

The Act could have big implications for community-based renewable energy projects.

Right now, there are two kinds of community-based renewable energy projects, the charitable or the persistent.  Solar Mosaic, for example, was founded and funded on the concept that many environmentally-motivated people would help finance local solar projects with 0% interest loans.  They succeeded in building several projects, but the model is constrained by the limited universe of people who have money at hand and are willing to let it be used for no reward.

The other kind of renewable energy project allows participants to get some kind of financial reward through sheer persistence, overcoming enormous regulatory and legal barriers to success (some of which I covered in this 2007 report).  It means finding a complex legal structure to capture federal tax credits despite needing investors with “passive tax liability” or sacrificing federal incentives for simple ownership structures like cooperatives or municipal utilities.  It means having “accredited” (rich) investors or only soliciting investors through personal relationships.  This community wind project is an illustration, as are several solar projects in this report.

The JOBS Act may finally allow thousands of regular folks to make a modest return (5-10%) by investing in local renewable energy projects.  The Act allows for crowdfunding under the following circumstances:

  • The project raises less than $1 million
  • The project owner discloses certain financial information, such as income tax returns, financial statements reviewed by an accountant, or fully audited financial statements.

The $1 million limit is the approximate cost of a 200-kW solar project, so crowdfunding could mean a significant boost for community-based solar arrays, especially in states with virtual net metering (allowing those potential investors to share the electricity output).

Crowdfunding won’t mean much for wind projects, where a single turbine costs well over the dollar limit, but the JOBS Act also opened the door for more community-based wind with changes to SEC exemption Regulation A.  (For more on this, read my 2007 report on wind energy ownership and then this article on the changes to Regulation A).

It’s not all roses and unicorns.  There are still several potential hangups for the crowdfunding model:

  • The SEC still has to implement the new regulation (likely in early 2013)
  • Websites that host crowdfunding opportunities (e.g. Kickstarter) will have to comply with new regulations
  • The information disclosure requirements for potential project owners mentioned in the Act are not insignificant
  • Upfront costs such as legal fees, even for a modest crowdfunding venture, could still be $10,000 to $15,000
  • It’s not clear how crowdfunding solves the problem of capturing federal tax incentives

I’ll be interested to see how it develops.

John Farrell directs the Energy Self Reliant States program at the Institute for Local Self Reliance. This piece was originally published at Renewable Energy World and was reprinted with permission.

5 Responses to Harnessing The Power Of Crowds For Community Renewables

  1. Paul Klinkman says:

    We need something which I call a community-based business.

    A business is many people working together, the workers, the investors, the customers, the local community and “future generations”. In a community-based business, when the business makes a profit it’s split between all of the above stakeholders. Customers get lower prices, possibly even rebates from past purchases, and better service. Workers get more added to their retirement funds in retrospect. Everybody works together to lower costs and raise profits.

    I have nothing against the workers, consumers, investors and local community all being the same people at times. Workers and customers should invest in their company, all other things being equal. It eliminates the craziness of all the profits going to the investors, with occasional worker job actions, consumer boycotts and unfriendly communities.

    I recommend that the board of directors for this community corporation be elected by the above named groups in one big election, using proportional representation.

    For “customers” we need a block of representative voters for each constituency.

    The trick is to get people representing “future generations” voting their block for the board of directors. I might recommend that people with teenage kids or older would be the stakeholders to vote for “future generations”. They have a future constituent right there in the house who needs a job in five years or so, and who will be breathing the future air.

  2. Sara H says:

    Thanks for this information. I have heard bits and pieces of the new SEC changes for crowdfunding and their potential for small-scale solar projects (as well as for other community economic development projects), but this explained more about how and when it is likely to go into effect. Very encouraging potential for venture capital.

  3. fj says:

    Yes, rapid effective social change is the big difficult thing to get moving to slow accelerating climate change all working with what is given freely by natural systems:

    Profound integration with natural capital where human capital is the most important component.

  4. Sissy says:

    Thank you for the interesting insight. I observe similar trends across Europe, particularly in Germany. Over the past few years, more than 1000 companies were created to organize and finance community renewable projects. Nearly half of the 53 GW installed renewable capacity is already in private hand here.

    Heterogeneous company structure and financing mechanism exist.

    Crowd funding is often applied to small-scale capacities, predominantly solar. Wind parks on the other hand are more likely to finance itself via loans from people.

  5. Dr.A.Jagadeesh says:

    Why not Co-operative Renewable Energy Projects like Windfarm Co-operatives in Denmark and other countries?
    Dr.A.Jagadeesh Nellore(AP),India