The Energy Collective Group

This group brings together the best thinkers on energy and climate. Join us for smart, insightful posts and conversations about where the energy industry is and where it is going.

10,029 Members

Post

What is the Potential of Renewable Energy Crowdfunding?

In a recent interview, Greg Barker, UK Minister for Energy and Climate Change, described crowdfunding as “an incredibly powerful” funding model with the capacity “to help deliver my ambition for a far more decentralised energy system and achieve the goal of turning the Big Six into the Big 60,000”.

It is the latest boost in what’s turning out to be a defining 12 months for crowdfunding in the UK. At the end of 2012 the nascent movement established its own code of practice, and earlier this month a major Parliamentary report into the future of Britain’s banking sector highlighted the benefits crowdfunding provides by offering an alternative to banks and introducing important new asset classes to ordinary people.

In essence, crowdfunding is where businesses and projects are directly funded by large numbers of people putting in relatively small amounts of money. It has been called ‘democratic finance’ because it lets people choose exactly where their money goes.

Renewable energy crowdfunding 

It’s not hard to see why renewable energy and crowdfunding are happy bed-fellows. 

On one side, renewable projects can offer financial returns which are long-term, inflation-linked and relatively low-risk, in part due to Government backed mechanisms such as the feed-in-tariff.  

And on the other, crowdfunding resonates with a number of current social and political drivers. These include ordinary people demanding the chance to invest their money in something profitable and worthwhile; the Government’s desire to get more of us financially involved in energy projects; and the fundamental challenge our nation faces in raising huge amounts of capital to upgrade our energy infrastructure over the next decade. 

On top of all this, we now know it works. Abundance Generation is the UK’s first regulated crowdfunding platform that allows anyone to invest in renewables for as little as £5, and has raised £3m to date for one wind and four solar projects. In the USA, Solar Mosaic launched earlier this year and raised $313,000 in its first 24 hours.

It’s important to stress here however, that such investments are not risk free. Abundance debentures, for example, are long-term investments, returns are variable, and you may not get back all of your original capital.

How much investment does the UK need?

The Government’s Energy Bill currently grinding its way through parliament has one goal above all others – to attract the £75bn of investment we need by 2020 for new low carbon power generation. Because nuclear power stations take so long to build, almost all of this will be for renewables by this date.

The “big six” utilities will provide some of this, but the Government knows it needs to access other forms of capital too. Institutional investors like pension funds will undoubtedly be large contributors, but it is increasingly recognised that meeting our goals will require a massive upscaling of people-powered finance.

According to Labour’s Shadow Minister for Climate Change, Luciana Berger, the Government’s own figures show that between 35% and 50% of the £75bn will have to come from independent companies and communities. That’s a staggering £26bn to £37bn.

What kind of contribution could crowdfunding make?

As impressive a start as renewable energy crowdfunding has made so far, it doesn’t yet scratch the surface of an amount this big. So to understand the potential that regular people have when they combine their resources, events in Germany over the last decade are a useful guide.

The German Energiewende is the world’s most ambitious programme to move rapidly to a low carbon energy system. Although not without its problems, this transformation has means that Germany already gets 25% of its electricity from renewable sources. And the extent of citizen financial participation is striking. Almost half (46%) of the country’s renewable power capacity is currently owned by private citizens and farmers.

Image

 

A variety of structures has been used to achieve this. For example most citizen wind farms (Burgerwindparks) are limited partnerships, whereas most citizen solar PV projects are either private household rooftop installations or larger cooperative schemes. Cooperatives have grown massively in Germany in the last few years, with over 80,000 Germans now involved in this way.

The chart below shows total investment in German renewable energy since 2000. The total amount invested in the last 8 years is €137bn, primarily in wind and solar power.

Thus, given that 46% of renewables are owned by citizens, we can estimate that ordinary Germans have themselves raised around €63bn (£54bn) since 2005 for renewable projects.

Even when we apply an equity ratio of 20% (the minimum needed for Burgerwindparks) or 46% (the average achieved by German renewable co-ops), they would still have directly invested between €13bn and €29bn of their own money.

Image

Can this be replicated in the UK?

The fact that this amount of people-powered finance has been raised in Germany shows that it is also possible for the British people to make a major and direct contribution to the capital we need for a low-carbon energy transition. 

The question is, are we up for it? According to a recent survey, the answer is yes. One third of us say we would like to personally invest in community-scale renewable projects, and if each of these 16 million adults invested as much as the average German renewable coop member (€3172 or £2,690), then £43bn would be raised. We’d be where we want to be.

Of course in reality no single mechanism will be sufficient on its own to mobilise this level of finance. But crowdfunding will surely have a critical role to play. 

Consider this. The amount raised globally from all types of crowdfunding in 2012 was $2.7bn, and this is expected to reach $5.1bn this year. Specific to renewables, Solar Mosaic recently got permission to crowdfund  $100m of new renewable projects in the US, and Abundance has an ambition to raise £1bn in the UK within 10 years. 

So the numbers are getting bigger, and with the right policies and incentives in place the massive potential of renewable energy crowdfunding can be turned into reality.

Original article.

Sam Friggens's picture

Thank Sam for the Post!

Energy Central contributors share their experience and insights for the benefit of other Members (like you). Please show them your appreciation by leaving a comment, 'liking' this post, or following this Member.

Discussions

Andrew Kazantsev's picture
Andrew Kazantsev on August 22, 2013

it would be great to use the crowdfunding for startup of Air Hydro Power – a new huge resource of renewable energy and freash water from clouds ( http://airhes.com ), but how to do it?

dennis baker's picture
dennis baker on August 23, 2013

 I need someone with crowd funding expertise to step up to the “plate and swing” away to finance a prototype The Big Picture Overview Green Economy Coalition  

 

The Idea is redirecting sewage (human) and manure (agricultural) organic waste , to facilities that convert the waste into hydrogen, of sufficient quantities to replace fossil fuel powered electrical generating facilities.

Its redundant to reiterate the facts to you learned people with the dangers associated with these wastes , and the great efforts made to address these waste streams throughout history, you all know this stuff, and recognise termination is a solution to these issues.

Exposure to intense radiation is required to convert the excrement to hydrogen, and sufficient quantities of suitable Nuclear Waste exists right now.

Its redundant to reiterate the facts to you learned people with the dangers associated with these wastes , and the great efforts made to address these waste streams throughout history, you all know this stuff.

A productive use of both these waste streams , replacing the primary source of Co2 emissions, accused inducer of climate change, is a win / win situation for us all.

We are going to reach 10 Billion soon enough, and Human Organic Waste will power all industrial and municipal electrical requirements, after conversion to hydrogen.

Underemployment issues could be addressed as the infrastructure modifications to accommodate 10 Billion , will be extensive.

One solution addressed is youth unrest , we are all connected by a genetically encoded desire to part of the team, participating in good fight for the survival of the species. This is a good fight. Active participation is welcomed and needed from youth to accomplish this energy evolution.

The best minds on the planet are welcome and needed to finance, engineer, design and operate these new facilities, with resilience to face the climate changes ahead uninterrupted.

The big picture ” were it for the long term “.

Dennis Baker

 

 

Lewis Perelman's picture
Lewis Perelman on September 4, 2013

Crowdfunding can be a useful mechanism for helping to accelerate energy technology innovation — supporting R&D, venture capital for start-ups and such. Indeed, this is one of the key planks in my “Plan B” outlined in Energy Innovation: Fixing the Technical Fix.

But what is described here seems to focus on using crowdfunding to finance government subsidized or mandated deployment of inadequate technologies that are otherwise not cost-competitive or cost-effective in comparison with conventional energy systems. This approach creates moral hazard and risks promoting a bubble-bust cycle similar to that which led to a crash in real estate that in turn spawned a global financial disaster. In that case, government-created market distortions such as sub-prime mortgages induced millions of people to invest more in buying homes than they realistically could afford. The hazard was amplified when those risky mortgages were packaged and resold in the form of various derivative financial instruments such as CDOs and swaps.

Government subsidies and mandates for renewable energy already have spawned a wave of bankruptcies when those policies proved unaffordable to governments faced with declining economies and bloated debts. Inducing more members of the public to embrace more of the same financial risks does not seem like a prudent policy in light of recent history.

Sam Friggens's picture
Sam Friggens on September 10, 2013

Hi Lewis

Thanks for your comments, although you probably won’t be surprised to hear that I don’t agree!

Firstly, I don’t think the analogy with sub prime mortgages and the run up to the financial crisis is particularly enlightening or useful here. Then you had an under regulated financial sector lending too much to the wrong people, without any real sense of how much risk was building up and where it lay. My article argues that crowdfunding (partly as an alternative to the big banks) can be a useful way to include ordinary people in what is a relatively safe investment opportunity.

Of course, ALL investment carries risk, and anyone considering crowdfunding or anything else should make sure they know what they’re getting themselves into. But because small scale renewable projects (in the UK at least) receive a guaranteed income for the electricity they produce through the Government backed Feed-in-Tariff, I would say the risks are relatively low here.

Whilst you’re right to say that in some countries some subsidy schemes have been retrospectively altered even for renewable projects with existing contracts, this is rare to date, has only happened to my knowledge in places that have suffered the very worst sovereign debt crises, and certainly no-one in the UK is suggesting it will happen here. Indeed in much of the financial world the risk associated with Government backed infrastructure is considered about as safe an investment as it’s possible to get.

Finally, on the subsidy point, there is a wealth of academic literature out there on innovation theory and how subsidies to help new technologies over the valley of death to commercialisation are actually an essential Government intervention for market failures. Of course these subsidies shouldn’t last forever, but given that the costs of solar and wind are coming down so fast, and the fact that in most of the world there is no adequate price for the damage fossil fuels do (a situation now considered by the IMF as a subsidy for fossil fuels), then I think there is ample justification for state intervention in the form of declining and well managed renewable subsidies at this time.

Nonetheless, I do appreciate your thoughts. 

Thanks

Sam

Lewis Perelman's picture
Lewis Perelman on September 10, 2013

No risk in the UK, Sam? I guess this didn’t really happen then:

http://www.theguardian.com/environment/2013/jan/23/solar-companies-feed-in-tariff-cuts

Sam Friggens's picture
Sam Friggens on September 10, 2013

Nice try!

 

First up, I certainly didn’t say there was no risk to crowdfunded investments in the UK. In fact I went to great lengths in my last response to say precisely the opposite. But crowdfunding can be applied to both high and low risk investments, and investing in renewable energy projects (which use proven technologies and are covered by the feed-in-tariff) is relatively low risk.

 

As for the Guardian article you link to, this refers to a well publicised incident in the UK where the Government cut feed-in-tariff rates for solar PV at very short notice. Critically though, this cut was for future projects not yet completed and generating power. The cut therefore impacted manufacturers, suppliers, installers etc, as they suddenly had less demand for new panels. However the cut did not apply retrospectively to solar projects already completed and therefore did not undermine returns from investments already made in renewable projects under the FiT. And any investments in projects made after the cut was announced would have been marketed to investors with likely returns calculated on that basis. 

 

It’s worth stressing if it wasn’t clear that my article is focussed on crowdfunding as a means to finance new renewable projects, not as a means to raise capital for supply chain companies. The latter clearly entails different risks.

Lewis Perelman's picture
Lewis Perelman on September 11, 2013

error

Lewis Perelman's picture
Lewis Perelman on September 11, 2013

Willem, thanks for your reality checks. 

The illuminating Der Spiegel report is also discussed here:

http://spectrum.ieee.org/energywise/energy/policy/germany-could-face-electricity-customer-revolt

Also, I agree that ad hominem language is inappropriate and counterproductive.

Get Published - Build a Following

The Energy Central Power Industry Network is based on one core idea - power industry professionals helping each other and advancing the industry by sharing and learning from each other.

If you have an experience or insight to share or have learned something from a conference or seminar, your peers and colleagues on Energy Central want to hear about it. It's also easy to share a link to an article you've liked or an industry resource that you think would be helpful.

                 Learn more about posting on Energy Central »