By: Gigaom
January 11, 2013 at 15:27 PM EST
Why crowd funding could disrupt how solar power is created
Will the combination of Kickstarter-style crowd-funding and low risk investing lead to a disruptive new form of financing for the world's solar projects. With some good execution and marketing, I think so.

If you’re an avid Kickstarter backer, or even have seen Kickstarter’s latest 2012 stats, then you’re well-versed in the power of crowd-funding. Kickstarter recently said that 10 percent of the films at Sundance are Kickstarter-funded, and in 2012 over 2 million people pledged close to $320 million to successfully fund over 18,000 Kickstarter projects on the site.

Can clean power projects — like solar panel rooftop installations and even wind farms — tap into this crowd-funding trend using a twist that actually makes money for its backers? The folks at startup Solar Mosaic hope so, and their very early success is a good indication that it can.

This week Solar Mosaic officially opened up its crowd-funding platform to residents of California and New York and raised over $300,000 for three new solar projects in less than a day. Four hundred investors participated, fully funding solar roof top projects for several schools in California, and the backers were offered a 4.5 percent annual return, with a 9-year term. Three hundred thousand dollars isn’t all that much when it comes to the potentials of crowd-funding or the finances needed for clean power infrastructure, but it’s the beginning of something new and potentially very powerful.

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The drive behind crowd-funding

Even without the financial aspect, solar projects — and even other types of clean power — seem to be uniquely suited to the crowd-funding model. People put money into Kickstarter projects for a variety of reasons, but some of those reasons that line up nicely with solar power include: the feeling of participating in a community or being part of a movement, the feeling of helping with the creation process, and the feeling of being at the cutting edge of new things (art, gadgets, etc).

While solar projects clearly lack the ability to receive an exclusive piece of music or a wearable gadget before the rest of the world, solar projects have something that most movies and game development don’t: they have an underlying positive effect on the planet in that they provide fossil fuel-free power. This do-gooder aspect could, and will be, exploited to get funding from people who care about fighting climate change. And yes, while it might not be all that popular of a cause in the U.S., a growing amount of people do care about this issue.

Kickstarter isn’t about creating charities, but Kickstarter backers commonly are looking to help out in some way. As this avid Kickstarter backer told VentureBeat, he supports projects that he thinks should exist, even if there is no direct benefit to himself. I recently backed a pay-as-you-go solar project in Mwanza, Tanzania on another solar crowd-funding site called SunFunder, which doesn’t yet provide returns for investing. Kickstarter backers aren’t focused on making money.

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The numbers behind Kickstarter show that projects are commonly backed by a combination of a few people that put in a lot of money, and a bunch of people that put in the smallest amounts. The community of backers doesn’t even have to be all that large to get a project funded, just some of the members have to be passionate enough to be willing to put in sizable amounts.

The early numbers seem to be similar for solar. The largest investment in Solar Mosaic’s three new projects this week was $30,000 (of the $300,000+ total) — so 10 percent of the total was backed by one investor. Yes, this is a little different because they’re getting their money back and more over the life of the term, but it often times works the same for Kickstarter-style crowd-funding.

A new form of investment

But now that Solar Mosaic has combined crowd-funding with the ability to deliver a reliable, low risk return for the backers, Solar Mosaic has moved beyond the realm of Kickstarter and into something more akin to putting some money into a mutual fund. A fair amount of people with enough savings would consider putting extra funds into an account that can deliver a 4.5 percent annual over a nine-year term.

In fact, one of the most surprising things to people when they hear about the Solar Mosaic model is how decent the return is on their money — it beats a savings account or most CDs in a bank. But a 4.5 percent is just the beginning. Another project on the site is going to return 6.38 percent. The figures could go up to potentially 8 or 10 percent for certain projects and certain terms. The investors make back their money on a percentage of the revenue provided by the monthly solar power bill over time.

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The risks of investing in solar panels seems to be relatively low. Solar panels are commoditized now and the warranties are known. The types of buildings that are getting these solar panels — say a hospital or community center or school — also aren’t all that likely to stop paying their monthly electricity bill to keep the power on. However, that is a small risk.

Any surprising risk will also emerge as the platform matures. Hopefully any hurdles they face on the risks wouldn’t be big enough to taint the model.

New untapped funds

This type of crowd-funding investment could provide a disruptive source of funding for solar and clean power. Finding financing for solar projects from more conservative large banks and financial institutions has been an issue over the years.

Companies like Google — which are both progressive, and have ample funds — are trying to lead the way by having invested over $1 billion into 2 GW of clean power (or a Hoover’s dam worth of clean power). Google commonly says it’s partly funding these projects because the return is good. Other solar financing companies, like SolarCity and Clean Power Finance, have emerged in recent years to take advantage of the hesitancy of financial institutions.

But still there is a lot of financing that could be tapped by clean power but isn’t yet. And that could be organized by crowd-funding. According to a paper from Bloomberg last Summer, if one percent of retail investments in savings accounts, money markets and U.S. Treasuries was put into crowd-funding of solar projects, that would deliver more than $90 billion for the creation of clean energy projects.




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