Published on May 14th, 2012 | by Zachary Shahan0
Solar Investing Goes Mainstream
by Jesse Morris
Thousands of Americans log in to online trading accounts every day to manage personal stock portfolios. Now, there’s a new option for individual investors. I recently took advantage of this option by creating an account with Solar Mosaic and investing a small amount of money, along with about 85 other individuals, in a 26-kilowatt rooftop solar system in Oakland.
Right now my $25 investment is really an interest-free loan, since historically companies like Solar Mosaic haven’t been able to offer financial returns on their products. However, thanks to passage of the JOBS Act last month, Solar Mosaic and similar companies will be able to offer returns on investments for “crowdfunded” projects. So in addition to buying pure stock in a publicly traded company, I’ll soon be able to use websites like Solar Mosaic’s to build a portfolio of solar investments that provide a return on investment with every kilowatt-hour of solar energy produced.
Much has been written about the JOBS Act and its impending effect on crowdfunding, entrepreneurs seeking capital, and emerging growth companies like Kickstarter. But for me, crowdfunding’s new legal status and ability to raise capital for renewable energy projects is indicative of a broader theme: retail investors—that’s you and me, as opposed to institutional investors like banks and funds—now h
When I say “invest,” I mean it. Generally speaking, when folks think about investing in solar energy, they think about spending a bunch of money for a system on a home or business that will offset some electricity costs and pay for itself in savings at some point twenty years down the road. But solar costs have come down, and the industry is rapidly maturing. So now, when we invest in solar, we are no longer just doing the right thing and paying a solar premium. In many cases we can attach a required return to every dollar spent.
Let’s look at these five kinds of solar-focused investments that we can currently make as retail investors (if I’ve left any big categories off, please start a discussion in the comment section below!):
1. Crowdfunded Solar
- As outlined above, companies like Solar Mosaic will soon be able to offer modest returns on stable, low-risk investments in solar PV systems across the U.S. This is as simple as selecting a project, investing $25, and having cash payments flow into your account with interest over time.
- Crowdfunding isn’t just restricted to solar. In the UK, several companies are encouraging crowdfunded investment in community wind projects.
2. Direct Ownership
- In some states and local jurisdictions, a combination of plummeting solar photovoltaic costs, local and federal incentives, and escalating utility electricity rates have made flat-out ownership of a solar system a good investment with returns as high as 5 percent, depending on location.
3. Third-Party Finance
- In many places in the U.S., power purchase agreements and solar lease providers like SolarCity, SunRun, and Sungevity can offer zero- down solar leases that save you 15 percent from your old electricity bill from day one.
- While more of an immediate payback contract than an “investment,” the lease option opens up your bank account to put saved money to work elsewhere. Since retail electricity rates historically increase every year, financial returns can expand over the term of the lease.
4. Community Solar Gardens
- Hailing from RMI’s backyard in Colorado, Clean Energy Collective offers customers a way to invest in renewable generation to for up to 100 percent of their electricity use. This investment in solar energy and other renewables can provide a return on investment and is open to individuals without rooftop space of their own.
5. Direct Stock Purchase
- Perhaps the most obvious way for individuals to invest in solar, anyone can buy stock in publicly traded upstream solar companies like the NASDAQ-listed SunPower (SPWR), First Solar (FSLR), and Enphase (ENPH).
- Where one invests in the solar value chain can make a big difference on the success of the investment. Stock purchases of downstream participants (like installers and developers) whose value is aligned with the project-focused investing listed in the four cases above, may soon be an option as companies like SolarCity go public. One can already invest in developer SunEdison through its parent company MEMC (NYSE: WFR) as well as utilities and other larger companies that develop solar. But in these cases the investment will rest on all of the activities of the company, including those not solar-related.
- Additionally, several mutual funds and business development companies channel capital to solar projects and companies, but I’m not currently aware of any with a singular solar focus—although this could change in the future.
With these investment channels open to individual investors of all shapes and sizes, there’s a lot of moneymaking potential—especially over the next decade. A recent report by McKinsey & Company predicts that global installed capacity could increase to anywhere between 400 and 600 gigawatts (GW) by 2020, up from 65 GW globally today (Five GW of solar panels roughly match the electrical generation of a large nuclear power plant).
For market growth to occur on this scale and for RMI’s long-term vision of a U.S. electricity system based on efficiency and renewables to become reality, several things must happen in the renewable energy space—including more open access to additional capital markets capable of supporting a ten-fold expansion in installed solar capacity between now and 2020.
But even with these challenges in mind, the current and emerging diversity of investment options available to retail investors are promising signs for the renewable energy industry as a whole.
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