Community-scale solar projects have long faced high up-front capital costs that make them especially difficult to finance in less affluent areas.
This article catches up with a company that announced plans on this site about a year ago to develop innovative financing solutions for solar projects in afflicted communities.
Where other venture funds invite investment in projects that can change the carbon balance, Raise Green focuses on helping investors address communities they know- and receive a long-term return.
Matt Moroney and Franz Hochstrasser founded their venture capital fund as a way to break through barriers in the fight against climate change. Writing to congressmen for a Green New Deal, or tweeting at the board of directors of Fortune 500 companies to ask them to stop polluting, seemed limited. From their frustration came innovation.
The pair co-founded Raise Green, a funding platform to accelerate local development of solar projects, when they grew "tired of waiting [for change].” They spelled out their plans almost exactly a year ago in an essay on this site.
Operating on the premise that the people closest to the problem are best positioned to act, Raise Green supports projects with diverse leaders and in marginalized communities that have experienced the brunt of pollution. Unlike community solar co-ops, Raise Green allows funding by anyone (with a minimum $100 investment) and provides software, known as the “Originator Engine," to help communities create, build, run, and replicate their solar projects.
Moroney and Hochstrasser began formulating the idea for Raise Green in 2017 after seeing data sets of air pollution hot spots in Oakland. To Moroney and Hochstrasser, it seemed obvious that pollution hot spots should be the same spots where solutions are implemented. However, one critical question remained: “how do you finance [these projects]?”
Moroney notes that small solar projects face many obstacles, including high upfront capital costs, high interest rates on loans, and a lack of verifiable impact certification. These obstacles lead to financing challenges, scarce community ownership of projects and a lack of usable metrics that would make the projects logical for ESG portfolios. Raise Green and their Originator Engine provide legal templates to quickly launch projects, checklists to ensure the projects remain on-track, and tools to ensure compliance with federal and local regulations. Raise Green also offers financial modeling and negotiation support to help the projects reach more lucrative power purchase agreements.
Raise Green’s first test came in 2018, when Moroney and Hochstrasser joined forces with Gioia Connell, a friend studying at the Yale School of Architecture and what's now the Yale School of the Environment. For a building project, the student wanted to use the Raise Green model to install solar panels. Raise Green had not yet been finalized. As a pilot, Moroney and Hochstrasser took their own customer journey by creating New Haven Community Solar (NHCS), and doing two crowdfunded projects that they issued on two separate funding portals (Startengine and Mainvest). They did this aiming to obtain the knowledge, document sets, and financial models to replicate.
After others asked the team to replicate the project, they decided to try to enable anyone to to make a copy of the project and raise their own money. This led to the Originator Engine. Raise Green later received a funding portal license and the platform became official.
Equity crowdfunding is not a new idea, but Raise Green’s model creates a niche in the impact investing marketplace. Raise Green is unique because it reports direct impacts from each dollar an investor provides. When an investor puts money into a solar project through Raise Green, they can know exactly how many kilowatt hours of clean energy they generated with their dollar. Furthermore, Moroney notes that project financing also allows investors to know how much CO2 is reduced and how much money the organization that bought the solar power saved.
Moroney also stresses that Raise Green aims to help project developers earn predictable cash flows. Raise Green’s projects have contracts with someone to buy the electricity generated for a set period of time, like a conventional power purchase agreement. “Unless the purchaser goes out of business, the project will receive funding for a set number of years,” says Matt. The security provided by the contracts can give investors more clarity.
This approach distinguishes Raise Green from most venture funds. The largest issue with ventures, Moroney says, is that it is much more difficult to determine expected revenue because “you don’t know how many [widgets] you’re going to sell next year.” In addition to a more volatile risk profile, these other platforms also create impact that can be difficult for an individual investor to quantify. Moroney provides an analogy of a “fuzzy wall” where the investors know they “might make an indirect impact by [the company] making a carbon plan or recycling plan or taking some measures, but [they] don’t know how much impact a dollar is providing.”
Raise Green’s platform puts the power to reduce carbon emissions in the hands of those closest to the problem. However, the platform does require all potential projects to go through a vetting process. Dubbed the “RAISE” selection process, each letter of the acronym represents a key component that the Raise Green team looks for in each project before allowing it to list an offering on the site. The evaluation process is subjective, but Moroney notes that Raise Green works diligently to make the evaluation process measurable. (It also includes two "a"s.)
Raise Green looks for projects in front-line communities that are receiving disproportionate exposure to environmental harms.
The first component is revenue; all projects must be “revenue positive”, Moroney explains, and Raise Green has “internal metrics” to gauge how the dollars that investors supply relate to project expenses. Second is ambition: the platform prioritizes teams who aim to meaningfully reduce carbon emissions. Raise Green also looks for “additionality”, meaning teams who have had trouble getting financing already and might not start work without the platform. The following three measures, “Impacts”, “Social” , and “Environmental”, are more subjective. Moroney explains that they look for projects in “front-line communities” that are receiving “disproportionate exposure” to economic or environmental harms. They also seek diverse leadership. Raise Green offers a $2000 grant for teams with female leaders or leaders of color, which Moroney describes as another way to “push impact forward.”
The vetting process does not end with the five metrics listed above. Moroney also says Raise Green performs a “rigorous degree of diligence”, which includes reviewing contracts, operating agreements, and testing their financial assumptions. A lot of Raise Green’s work occurs behind the scenes, in a “black box”, where outsiders cannot determine how the different vetting components and metrics are used and weighed to make a final decision about which projects will be allowed on the platform. To truly empower all developers, the group may need to be clearer about their criteria and what specific metrics are used.
For Moroney, a lot of value arises when the team helps project developers “make the conceptual leap” that equity crowdfunding can finance their project. The Raise Green team is optimistic about the future of the platform because of a financing gap of $400 billion in renewable energy deployment that is accruing every year. “If we want to hit 1.5 [degrees Celsius climate target], Moroney says, “we need to up the ambition by five times.”
Raise Green’s platform gives investors a detailed climate-impact report and allows solar project leaders to retain ownership of their project. That may well stoke ambition. Although Raise Green’s selection process of projects is more subjective than not, it posits that its platform fosters a greener future where communities have financing resources to construct a solution to pollution that works best for them.