SOLAR:

Bay Area startups marshal small investors in bid to 'democratize clean energy'

SAN FRANCISCO -- Left-leaning politics and enthusiastic small investors have created a cradle for innovative green-energy financing schemes in the Bay Area.

Small businesses -- some nonprofits and some more capitalistic -- are turning nickels and dimes into solar-power installations that might not see a penny under traditional financing models.

Consider the Oakland-based startup Mosaic. Founded in 2011 by 31-year-old Yale University dropout Billy Parish, Mosaic raised $313,000 in less than a day. Cash provided by 400 people -- investments ranging from $25 to $30,000 -- will fund the refinancing of solar panels on affordable-housing complexes. In turn, the company is offering investors a 4.5 percent rate of return over eight or nine years.

"We are looking to democratize clean energy and open up this opportunity to as many people as possible," Mosaic spokeswoman Lisa Curtis said. Comparing renewable power's rise here to the Industrial Revolution, she said, "We think we're at the turning point for another transition. There will be a lot of wealth created, and we're trying to make sure as many people as possible benefit from that transition to clean energy."

Mosaic is the highest-profile company using so-called crowd funding, having scored a $2 million grant from the Energy Department's SunShot Initiative last year as well as $3.4 million from venture capitalists, but others are trying their luck.

San Francisco-based RE-volv, for one, is a nonprofit revolving fund that bundles donations to build and lease solar projects to other nonprofits. The lease payments will fund new installations with an eye toward having payments from one project back up to four other installations over 20 years.

Unlike Mosaic, RE-volv doesn't pay a return on investment. "Who wants $20 back nine years from now?" 29-year-old founder Andreas Karelas said. "You're not even going to remember who you gave that money to."

Micro-lending sites like Kiva.org, he said, have found that investors choose to put their money back into new projects. "Why don't we just skip that middle part," he said, "and reinvest it as the money is coming back in?"

The crowdsourced projects are dwarfed by solar installations backed by banks. All nine projects currently on Mosaic's website, for example, generate a total of just under 400 kilowatts, while Bay Area installer SolarCity received financing from Bank of America in 2011 to power as many as 120,000 military housing units with 300 megawatts of solar.

The crowdsource contributions are similarly scaled down. RE-volv's first campaign on Indiegogo.com, which closed last week, raised $15,441 from 199 people. The donations ranged from a dollar to $1,000.

"There's this huge amount of these small to medium-size buildings that want to go solar, and they're unable to because the market hasn't been able to figure out a way to make it cost-effective to them," Karelas said.

Banks generally won't back small solar projects, Curtis said. Citing industry data, she said fewer than 5 percent of 6,500 U.S. banks are financing solar installations.

"The structuring of these deals is pretty complex and the transaction costs can be high, so it's typically hard to do any one-off deal unless that deal is very large," said Jason Kaminsky, a vice president of environmental finance at Wells Fargo. Kaminsky's bank has financed projects as small as 100 kW, he said, but only as part of a portfolio of multiple installations on commercial buildings.

There are other options for small nonprofits. Community development funds connect investors to low-income housing developments and other community development projects, but they are limited by the cost of legal work and of finding investors, said DeWitt Jones, president of Boston Community Capital's for-profit solar arm, Solar Energy Advantage, which has financed about 60 solar projects.

"I would guess we've spent a million dollars on transaction costs in the five years we've been doing this," Jones said. "A 40-kilowatt system is too small for us generally to cover all the transaction costs."

Jones said that the return on investment might not attract small investors beyond those interested in supporting solar for altruistic reasons. At a 4 percent return on a $25 investment, he said, "It's a dollar a year. I could probably find that on the street wandering around for an hour. But for small investors, if it is the impact, not the return, that motivates them, then it could transform how we think about finance and investors and be a home run for small-scale solar projects."

Will it last?

The big question is whether the crowdsource movement will be sustained when the buzz around clean power fades.

"I think there is a certain play on empathy right now," said Anthony Kim, a solar analyst for Bloomberg New Energy Finance. "Once you get hundreds of these projects, I'm curious to see if people will be as engaged as before."

But others said the returns would help the crowd-funding model scale up.

"I think everything is about scale," said Chase Weir, CEO of Distributed Sun, a Washington, D.C.-based commercial solar developer working with Mosaic in an effort to standardize risk assessment for solar projects. "If it's truly repeatable at a scale that has an impact on how solar is built, there needs to be a return."

Another San Francisco-based company, SunFunder, lends money to renewable energy projects overseas. The company has funded four projects so far with investments from people in 39 countries. It repays investors, who contribute as little as $10, but keeps the interest, which allows the company to bypass Securities and Exchange Commission rules governing the sale of securities, said co-founder Ryan Levinson, 33.

"We'll see what happens in the future with SEC regulations and possibly adjust our strategy on this in the future," he said. "There is currently a good amount of uncertainty on this."

Mosaic is also waiting on the SEC to complete rules for the Jumpstart Our Business Startups Act, or JOBS Act, which is aimed at easing securities regulations in hopes of boosting funding for small businesses. In the meantime, Mosaic is working in individual states to allow small investors to participate alongside large ones.

"We're excited about [the JOBS Act], and I think it will in some ways benefit us, but since it hasn't been implemented yet, we're not sure specifically how it will affect our business," Curtis said.

An SEC spokeswoman wouldn't give a timeline for the regulations.

"We've been working very hard on this complex rulemaking effort," she said in an email. "We will continue working hard amid a busy rulemaking agenda to get these crowd-funding rules done as soon as possible and to get them done right -- with the appropriate investor protections in place."

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