Crowdfunding is an innovative type of financing that allows people to pool their cash. And it’s taking off big time in renewable energy. You can now invest your money in any venture you choose, and then reap the rewards.
The ins and outs
So how does crowdfunding work? Julia Groves from the Trillion fund, a new crowdfunding platform that aims to invest $1tr in renewable energy in the next decade explains the process:
“Trillion Fund acts like a matchmaker between businesses that are building renewable energy assets such as solar farms, and people who want to invest in renewable energy.
“We have a directory of investment opportunities and are building tools to make it easy for people to research, compare and then choose [renewable] investments themselves. They can invest as little as £100 in a bond for example, paying it in with their debit card or via a bank transfer. There will be a target amount of money the company is trying to raise, so during the ‘crowdfund’ the total amount of money raised will go up and up until the target is reached, and the deal is closed.”
So far, solar, wind and biomass projects have being funded all over the country. One example is a renewable project in the South Downs, which has been set up to bring together homeowners and investors and spread the benefits of solar PV more widely. People who invest receive an estimated rate of return across the 20-year life of the project of 6 percent to 7.8 percent for financing the installations by sharing in the profits from Feed in Tariffs (FiTs). Homeowners provide their roofs and benefit from the free renewable electricity produced by the panels. A win-win situation.
The business model is simple and clear, contribute a sum of money and you will gain a set return from that investment over a period of time. Tom Harwood from Abundance, a large UK renewable energy crowdfunding platform says,
“It’s easy to see how the business model works , see how much a project will be, predict the tariff and calculate the energy generated. You know what you’re getting involved with at the start.”
Most of the returns from renewables at the moment are coming from FiT as they represent a secure financial proposition and good returns. But there are hopes that as costs for renewable technology drops, the projects will become attractive enough to be self funding in the same way a power station is today.
Why now and not before?
A few things are playing a role as to why crowdfunding is taking off now; dissatisfaction with political and financial systems, low interest rates and most importantly the internet. Joe Gladstone, a PhD student and behavioural economist from the University of Cambridge explains.
“People have always wanted to cooperate socially and economically but haven’t been able to because it takes a lot of effort to find other people who have the same interest. The rise of internet has completely changed this. It is now very easy to find other people with same motives who can contribute together.”
And this is all about the money, as Groves says:
“We think money makes the world go round – we may wish it didn’t, but my seven years in renewables so far has taught me that there are very few of us that are purely motivated by CO2 reduction. We need to appeal to heads first and hearts second, otherwise all we are doing is preaching to the converted. So we are about profit as motivation, making money from making a difference.”
But it’s also about people getting together. A lot of communities feel they don’t get much say in large renewable projects. With crowdfunding however, having a wind farm in your backyard isn’t half as bad if you are getting a share in the returns. The Westmill solar project is a good example in which the local community took control and bought back the solar farm from venture capitalists. Projects are springing up all over the country, with a positive response from communities who feel they can enjoy the financial benefits too.
Crowdfunding is about solutions to problems using a new type of investment where you can sidestep big banks and investment firms. Now people really can decide for themselves what they want their money to do.