Regulatory changes to the Securities Act in 2016 enabled crowdinvesting, an idea that can usher in a new era of inclusive project finance, ripe to transform the clean energy industry.
My partners and I co-founded New Haven Community Solar as a proof of concept to demonstrate this inclusive and local impact investing in clean energy.
Inclusive growth through crowdfunded project finance has great potential for allocating new capital to impactful clean energy projects that might otherwise not be built.
We’re all aware of the impacts of climate change, but the options for meaningful and substantial climate action by individuals are limited. It can make us feel helpless. If I asked you today what you could do about climate change, you might say you can recycle, drive less or bike more. Those are great things to do, but we know defeating the climate crisis will take more than changing our light bulbs. We must work together, and act as a crowd.
Regulatory changes to the Securities Act in 2016 enabled crowdinvesting, an idea that can usher in a new era of inclusive project finance, ripe to transform the clean energy industry. While project finance has been used for centuries to fund large infrastructure projects — the Romans used project finance to build aqueducts — current financing and development models favor large banks, corporate developers and accredited investors (or fewer than 10% of Americans). These models are important for large projects, but they have not resulted in the pace and scale of investment needed to effectively mitigate climate change. Traditional financing also unnecessarily excludes the general population from accessing, owning and benefiting from the clean energy revolution.
Instead, we need to envision a democratized clean energy future, with renewable energy and climate solution projects originated and owned by the communities that use them.
My partners and I co-founded New Haven Community Solar as a proof of concept to demonstrate this inclusive and local impact investing in clean energy. Last fall, New Haven Community Solar conducted a crowdinvesting stock offering, and succeeded in financing a 9.24 kilowatt community solar array in New Haven, Connecticut — the first fully equity-crowdfunded clean energy project in U.S. history. The solar array was installed on a duplex designed and built in collaboration with the Yale School of Architecture’s annual Jim Vlock First Year Building Project and Columbus House, a Connecticut nonprofit that serves people who are homeless or at risk of becoming homeless.
Crowdinvestors from 11 different states now co-own the solar array through New Haven Community Solar, which sells electricity to Columbus House at a 24% discount through a 20-year power purchase agreement. The array provides Columbus House residents with cheap renewable energy at a locked-in concessional rate in a state with the highest electricity prices in the continental United States. Investors have the potential for a return on their investment through an annual dividend as well as the reward of having helped to create tangible, on-the-ground benefits for an important community cause.
Over the next several weeks, New Haven Community Solar is raising a second round of funding to inclusively finance solar arrays on the 2019 and 2020 Jim Vlock Building Projects. Anyone can now invest directly in providing clean discounted electricity to a local non-profit and can own a piece of the clean energy infrastructure through our live offering.
Regulation Crowdfunding, the mechanism that makes this project possible, permits non-accredited investors to invest directly in private equity through registered portals. This new tool has the potential to accelerate deployment of renewable energy and climate solutions, help address income inequality, and create a more resilient economy through local development and distributed ownership. We’ve set up a new crowdinvesting platform, Raise Green, and we are using the experience from our first projects to create replicable templates that make these tools available to anyone that wants to originate and finance green infrastructure at the community-scale.
Traditionally it has been challenging for organizations like small businesses, non-profits, churches, schools and community centers to access financing for community-scale solar due to difficulties related to creditworthiness, capturing incentives and tax credits. Connecticut passed its Act Concerning Connecticut’s Energy Future as part of its budget bill in 2018 in an attempt to encourage adoption of renewables for these community-based entities. The bill mandates procurement plans for up to 150 megawatts of new shared clean energy facilities installed over the next six years, with no less than 10 percent of mandated facilities serving low- to middle-income areas. Meeting mandates like this one and similar goals enacted by state and local governments across the country will require new financing models to achieve rapid deployment of clean energy alternatives.
The Intergovernmental Panel on Climate Change’s 2018 report on the impacts of 1.5°C of warming estimated that we need to invest $2.4 trillion per year in energy-based climate solutions to keep global warming below that threshold. Yet according to the United Nations Framework Convention on Climate Change Standing Committee on Finance, only $681 billion was invested in 2016. Investment in renewable energy more than doubled the amount that was invested in fossil fuels in 2017 and wind and solar are forecasted to draw $8.4 trillion in global investment between 2018 and 2050. But a massive financing gap still remains between where we are and what it will take to avoid the worst impacts of climate change.
Crowdinvestment can help close that gap by involving everyone. We are developing this model because we simply cannot have ambitious climate solutions without environmental justice. From climate strikes and the global push for a just transition to the 116th Congress’s Green New Deal resolution calling for “leveraging funding and providing investments for community-defined projects,” there is a broader recognition emerging that our economies need to be inclusive to be truly sustainable. We need what we call “community climate cooperatives,” — new “CCCs” for the twenty-first century.
Equitable ownership is both a solution to our current crises and part of the continuing evolution of our economy. Shared ownership of our clean energy infrastructure — enabled through tools like crowdinvestment — further builds on the sharing economy that is finding new ways to manage resources like apartments, cars and bikes. As we are reminded by the volatility pervading public equity markets and lingering consequences from the 2008 recession fallout, financial models buffered from such shocks are important for the vitality and long-term stability of local economies.
Inclusive growth through crowdfunded project finance has great potential for allocating new capital to impactful clean energy projects that might otherwise not be built. We’re starting with community-scale solar because is a well-known clean energy asset, but ultimately this model can grow into all sorts of climate solutions projects: energy efficiency retrofits, net-zero affordable housing, electric vehicle charging stations, land trusts, conservation projects, community supported agriculture, and the list goes on. The development of crowdfunding regulation and technologies are just in time, as equitable investment in our future is needed now more than ever. With Regulation Crowdfunding, it starts in our own backyard.
The author is CEO and co-founder of Raise Green, Inc. and New Haven Community Solar, LLC. He is a graduate of the Yale School of Forestry & Environmental Studies. Learn more about New Haven Community Solar’s live offering here.