Crowdfunding for Community Power?

Date: 19 Jun 2012 | posted in: Energy, Energy Self Reliant States | 3 Facebooktwitterredditmail

Back in April, President Obama signed the JOBS Act and one of the most-heralded elements was so-called crowdfunding. The law sought to solve a major problem: it’s hard to finance small-scale business ventures.  Wall Street only cares about multi-million dollar plays and securities regulations make small-dollar projects rather difficult (and costly) to jointly fund.

The Act could have big implications for community-based renewable energy projects.

Right now, there are two kinds of community-based renewable energy projects, the charitable or the persistent.  Solar Mosaic, for example, was founded and funded on the concept that many environmentally-motivated people would help finance local solar projects with 0% interest loans.  They succeeded in building several projects, but the model is constrained by the limited universe of people who have money at hand and are willing to let it be used for no reward.

The other kind of renewable energy project allows participants to get some kind of financial reward through sheer persistence, overcoming enormous regulatory and legal barriers to success (some of which I covered in this 2007 report).  It means finding a complex legal structure to capture federal tax credits despite needing investors with “passive tax liability” or sacrificing federal incentives for simple ownership structures like cooperatives or municipal utilities.  It means having “accredited” (rich) investors or only soliciting investors through personal relationships.  This community wind project is an illustration, as are several solar projects in this report.

The JOBS Act may finally allow thousands of regular folks to make a modest return (5-10%) by investing in local renewable energy projects.  The Act allows for crowdfunding under the following circumstances:

  • The project raises less than $1 million
  • The project owner discloses certain financial information, such as income tax returns, financial statements reviewed by an accountant, or fully audited financial statements.

The $1 million limit is the approximate cost of a 200 kW solar project, so crowdfunding could mean a significant boost for community-based solar arrays, especially in states with virtual net metering (allowing those potential investors to share the electricity output).

Crowdfunding won’t mean much for wind projects, where a single turbine costs well over the dollar limit, but the JOBS Act also opened the door for more community-based wind with changes to SEC exemption Regulation A.  (For more on this, read my 2007 report on wind energy ownership and then this article on the changes to Regulation A).

It’s not all roses and unicorns.  There are still several potential hangups for the crowdfunding model:

  • The SEC still has to implement the new regulation (likely in early 2013)
  • Websites that host crowdfunding opportunities (e.g. Kickstarter) will have to comply with new regulations
  • The information disclosure requirements for potential project owners mentioned in the Act are not insignificant
  • Upfront costs such as legal fees, even for a modest crowdfunding venture, could still be $10,000 to $15,000
  • It’s not clear how crowdfunding solves the problem of capturing federal tax incentives

I’ll be interested to see how it develops.


Photo credit

John Farrell
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John Farrell

John Farrell directs the Energy Democracy initiative at the Institute for Local Self-Reliance and he develops tools that allow communities to take charge of their energy future, and pursue the maximum economic benefits of the transition to 100% renewable power.

John Farrell
Follow John Farrell:
John Farrell directs the Energy Democracy initiative at the Institute for Local Self-Reliance and he develops tools that allow communities to take charge of their energy future, and pursue the maximum economic benefits of the transition to 100% renewable power.

3 Responses

  1. Dr Theodore Holtom
    | Reply

    Thanks for a very interesting article. I’d just like to point out that wind turbines of all sizes and prices exist. Therefore it is wrong to say that a single wind turbine could not be built within the $1 million dollar limit. I’m not that familiar with the US market but I would imagine you could certainly install approximately 300 kW wind turbine within that limit, maybe even 500 kW? Solar is great, but wind is also great!

    • John Farrell
      John Farrell
      | Reply

      A very good point that wind turbines come in different sizes. I tend to focus on the most common commercially used turbines, which are generally 1.5 megawatts and larger, because the economies of scale for height (and wind speed) are so significant.

  2. Andreas Karelas
    | Reply

    Great article John. You do a good job at pointing to the opportunities that exist while also being realistic about the obstacles.

    There is one other crowdfunding model for renewables that I’d like to call attention to. RE-volv is a non-profit organization that raises money through crowdfunding for a revolving fund that invests in community-based solar projects. Individuals can donate to the fund and claim a tax deduction. But rather than it being a one time donation to a single project, their money is earning a return through solar lease revenues. The money they donated is continuously growing and being reinvested in additional solar projects. It’s the best of both worlds. It’s a donation that earns a return that’s continuously reinvested in the cause. Since the fund is constantly building on itself, it grows exponentially. And as more people contribute, the revolving fund moves faster and faster, serving more and more communities with renewable energy.

    Feel free to check out our website for more information.


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