The 4th Form of Financing Clean Energy & How it Cuts Cost of Capital
Updated: Nov 30, 2022
For Impact Driven Companies & Solar Developers
If you’ve worked in commercial solar development space, you’re well aware of one major key to success — access to capital. Luckily there are several avenues for obtaining it. Traditional options are working with a large investor or financial institutions and come in essentially three main forms:
Tax Investors: These investors take advantage of federal tax credits and depreciation benefits that lower their tax burden.
Equity Investors: These investors realize their returns from consistent cash flow generated by the sale of electricity and renewable energy credits created by the system over the life of a PPA.
Debt Providers: Traditional banks or other lenders that benefit from a fixed interest rate on the funds they provide and get low-risk payback from a consistent and contracted project revenue.
The last of these types is an interesting one that creates space for more innovative models with opportunities to expand access to capital and develop a stronger relationship with stakeholders and industry advocates.
As a solar finance and development firm, Solaris Energy, has typically used that last option to leverage debt against existing assets in order to create capital for new projects. This asset-backed loan is not an uncommon way to obtain that financing, but with new platforms and tools, it can be obtained without the rigorous process of using a bank or other financial institution.
The concept of crowdinvesting, like crowdfunding, uses the masses to raise money for initiatives and projects. Unlike traditional crowdfunding, crowdinvesting has the added benefit of providing financial returns to its campaign investors. In essence, crowdinvesting is very similar to acting as a bank made of hundreds or thousands of individuals. By using crowdinvesting in replacement of or in conjunction with a bank loan a solar developer can eliminate costly origination fees, set its own terms, and create a stronger relationship with stakeholders all well accomplishing its original goal of raising capital for solar projects.
Crowdinvesting does not necessarily replace the three traditional sources of capital solar developers need to be successful, but it can be a compliment to both their financial partner portfolio and value-set to drive a shift toward a renewable energy society. In addition, the more individuals actively participate in the solar projects through providing financing, the more they become invested in the outcome of the project and engaged in the success of the industry as a whole — amplifying a cultural and potentially political shift that favors renewable energy development.
An example of this type of capital raise in action is Solaris Energy’s Elm Lea Renewable Energy project on Raise Green — a platform solar developers can use for crowdinvesting. The project will use investor capital to leverage debt against an existing solar array at the Putney School in Vermont to develop additional solar assets across the United States. The raise is capped at $250,000 for companies without reviewed and audited financials but can increase up to $5 million with those completed. Solaris Energy set its own terms, including the return percent as well as the amortization and payout schedules. This can help make critical cashflow decisions a bit more flexible for the company based on the known and expected project pipeline.
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