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.
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.
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.
Sam is a writer specialising in renewable energy policy and alternative finance, and a consultant to firms in the UK's marine energy sector. He writes regularly for Greenwise, Blue & Green Tomorrow and Abundance Generation and is published on a number of other online platforms. His recent work with technology start-ups in the UK has involved policy analysis and financial appraisals for a wave ...
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