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Published on June 12th, 2013 | by Guest Contributor

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Why Is Solar Energy A Good Investment?



Here’s one more great guest post from Mosaic. This one’s all about investing in solar, which is what Mosaic is in the business of, so it knows what it’s talking about. 

By Billy Parish, Co-Founder & President of Mosaic

solar rooftop california net metering

Image Credit: Solar panel installation via shutterstock

This article is part of a Mosaic series on investments that create positive social, environmental, and financial returns. Read more about what makes a truly good investment.

Five years after the Great Recession, most Americans have yet to regain their faith in our country’s largest financial institutions. The Dow is up, but the latest Financial Trust Index shows that 58% of Americans expect the stock market to drop 30% or more this year. Meanwhile, a recent Harris Poll noted that only seven percent of the public trusts the leaders of Wall Street.

Strangely, the same poll which found that most Americans think stock prices will decline also found that 92% of Americans plan to hold or increase their investments in the stock market.

What’s going on here?

Why do we put our money in institutions that we don’t trust and investments that we think are going to decline in value?

The problem comes down to a lack of quality investment options. It’s hard to access a mix of investments that will provide reliable returns over the long run. Add in criteria about not investing in harmful or risky industries and the task of finding a good investment can start to look impossible.

Fortunately, solar energy is a good investment for Americans, particularly when paired with new kinds of investment marketplaces like Mosaic. Here is how we think about our investment product:

Financial Returns

Big banks are good at financing big projects. But for smaller projects, like commercial scale solar energy, big banks lend at exorbitant interest rates, if they lend at all. This fact makes it possible for Mosaic to make solar energy loans with interest rates that are lower than those charged by banks, but still high enough to provide competitive returns for investors.

To date, over 1,500 investors have used the Mosaic platform to provide more than $2.1 million in financing to projects in California, New Jersey, and Arizona. The expected annual returns on our most recent loans has been between 4.5% and 6.38%. With 10 year Treasuries at near historic lows (1.90%), CDs at 0.5% APY, bonds averaging 5.20% from 2003-2012 and stocks in the S&P 500 averaging 4.95% annualized returns from 2003-2012, Mosaic’s expected yields are competitive with the best investment products on the market.

Financial Risks

Like all investments, solar energy investments through Mosaic do not come without risks. Transparency is a core value, so we post the prospectus of each project on our website and encourage investors to read the prospectuses in order to understand the risks associated with our investments. Specifically, the broad categories of risk facing solar projects include credit risk (a borrower defaults), technology risk (solar panels fail), weather risk (a storm destroys solar panels), or operational risk (Mosaic goes out of business).

In the case of credit risk, Mosaic offers debt, rather than equity, financing for solar projects. if a project encounters a problem, our investors recoup their money first. We also employ rigorous underwriting procedures, which involve not only Mosaic’s project finance team, but also third party lawyers, engineers, and insurance experts to review every project. Finally, looking to the future, we recently helped found a solar industry consortium called truSolar, which aims to standardize the risk evaluation process for solar projects. Founding members of the group include 16 leading businesses and research groups, from DuPont and Standard and Poors to the Rocky Mountain Institute. By working with other thought leaders to establish best practices for risk evaluation, we aim to drive down financing costs across the solar industry.

In the case of technology risk, solar equipment is itself very reliable, to the point that manufacturers typically offer 25-year warranties for solar panels and solar inverters. Insurance for events like fires or hurricanes adds another layer of protection against weather risks.

Finally, in the event that Mosaic goes out business, we have entered into a backup servicing and successor agreement with Portfolio Financial Servicing Co. (www.pfsc.com) that would ensure the servicing of all issued loans. PFSC is one of the largest third party lease, loan and structured settlement servicers in the U.S., with $11 billion under management.

Where Does Distributed Solar Fit in a Balanced Portfolio?

For most investors, financial risk and return information doesn’t mean much outside the context of a broader portfolio. Most individuals and institutions invest in a portfolio of assets. We might invest in the stock market and in municipal bonds. Maybe we invest in ourselves, via payments for education, or in our homes, via expenditures on energy efficiency. So where do Mosaic’s investment products fit into this mix?

Our investment products function much like a bond. Debt generally lacks the significant upside potential of a stock (investors won’t earn more than the projected annual interest rate), but has less downside risk as well. Investors are repaid their loans, with interest, on a monthly basis. Investors could look at a Mosaic product to fulfill the same role in a portfolio as Treasuries or other kinds of fixed income investments.

More broadly, we see our products offering a hedge against two types of market risk.

First, because our investments are in tangible, localized assets, they are “uncorrelated” and offer a hedge against dramatic shifts in global markets. If you’re heavily invested in major corporations or commodities, investing in community-based assets could make good sense.

Second, our investments hedge against the increasingly systemic risks facing fossil fuels. Energy is the world’s largest industry, and so it should come as no surprise that energy investments make up a large chunk of the portfolios of institutional and individual investors alike. Global energy markets have experienced major swings for fossil fuel prices in recent years — oil, for instance, running up two historic price peaks with a crash in between, or gas plummeting in cost, and now rapidly rising — and it’s only going to get worse. In particular, we think it’s important for investors to understand that fossil fuel companies are betting against action on climate change. HSBC recently warned that the top 200 fossil fuel companies could see a 40-60% decline in their equity value if governments take action to curb climate change. Mosaic investments represent a way to start moving away from fossil fuels before the bubble bursts.

Compounded Good

If you invest in an index or mutual fund, or keep your savings in an account with a national bank, there’s a strong chance you are financing the operations of some of the world’s largest fossil fuel companies. As a father, I see this as illogical. What’s the point of making an investment that will pay for my childrens’ future if it also harms the world they inherit?

Mosaic investments run in the opposite direction. Our investors have so far financed enough solar energy to power 95 typical American homes every year. They’re creating societal gain, without compromising their personal gain.

But let’s break that down a bit further. The magic of investment is that it compounds. So what kind of compounded good could we create?

Well, our first fifteen hundred investors have put in $2.3 million. Assuming they all reinvested their money in new solar projects, and assuming they earn a rate of 4.5%, in ten years they would have a little over $3.6 million invested in solar energy. In twenty years, they’d be approaching $5.6 million invested, enough to power perhaps 600 American homes every year.

At Mosaic we believe the fastest way to create a 100% clean energy economy is to let everyone benefit from it. That’s why we work every day to create a rock solid, accessible clean energy investment.

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is many, many people all at once. In other words, we publish a number of guest posts from experts in a large variety of fields. This is our contributor account for those special people. :D



  • http://www.electricsaver1200.com/ Patricia Salvales

    I never thought of investing to solar because its expensive, but now that electric prices are gone high I am thinking of investing..

  • Karl Harder

    Great article if you are interested in investing in UK solar look at http://www.abundancegeneration.com – they are a uk alternative to Mosaic!

  • http://www.dailygainsletter.com/ Daily Gains Letter

    Hi

    I think trends reveal that stock market can face major changes in a short period of time and those who are not ready to face quick changes and lack adaptability are more susceptible to incur losses in stock market investment. In order to make yourself more adaptable you must not limit yourself to a particular sector and widen your portfolio by investing in other sectors as well.Thanks for this great sharing.

  • business loan

    very nice article thanks of posting….latestaccounting.com

  • rkt9

    For anyone interested in investing in the projects Mosaic presently has available, you must reside either in California or New York States, or be an accredited investor.

    • Matt

      Yes, while I love the Mosaic model, it is currently limited to two state and “accredited” (read rich) investors. I also understand that adding another state is costly so adding new states will likely be slow.

    • JimBouton

      That is not true. I have invested funds in Mosaic in two projects. One was in Colorado and the other was in New Jersey. The one in Colorado was offering 5.4% interest and was gobbled up in less than two weeks.

  • Benjamin Cramer

    Great events on solar financing, clean web, and more during
    New York Energy Week June 24 – 28
    Request an invite today – http://nyenergyweek.com/schedule/

    NYEW Series Breakfast: Solar Financing Market Perspectives
    Co-hosted by Citigroup, First Associates | Powered by Loeb & Loeb, SunEdison

    Marshall Salant, Head of Alternative Energy Finance, Citi
    Michael Eckhart, Global Head of Environmental Finance, Citi
    Larry Chiavaro, Principal, First Associates
    Sylvain Mansier, CFO Sungage Inc.
    Laurence Mackler, Founder and CEO, Solaire Generation
    Richard M. Lorenzo, Co-Chair, Energy Practice Group, Loeb & Loeb
    Steve Viscovich, Director, Credit Suisse
    Jeffrey Eckel, President and CEO, Hannon Armstrong

  • Doreen

    What’s good about investing in on grid solar power is that you get a weekly income of $2200 average. I done it for the benefit of the money, with the extra income generated I installed a large air conditioning system which is ducted right throughout the house. The main benefit of this I don’t have to worry about any bills, because the tariff covers everything. The current returns better than the money in the bank, so I installed it on two properties, the other in New South Wales, but it’s better in New South Wales that they paid at $.60 plus the eight $.08 bonus, much better rate than what I getting Queensland of $.55 kw.

    So far in total cash in $114,400 a year outlaying $35,000 the under the generous subsidies of the government. The system has paid back more than 300% try that on the stock exchange. You never see that return in a lifetime. This year I have 4 holidays 1 to Greece 1 to Cyprus, France, and Venice. It is worthwhile investing in a scheme. I never did it for CO2 emissions otherwise I would not been on an aeroplane taking holidays if I was concerned about CO2, only for a money so I can have a better lifestyle with my spa bath running without paying for it.

  • Adrian

    I would be concern of all the rooftop fire from grid tide solar panels that are been occurring around the world.
    These grid solar rooftop fires cause large property damage houses, TV media report say that the owner are not maintaining there equipment, but only to make money.

    http://www.sunshinecoastdaily.com.au/news/firefighters-solar-panel-selectrocution-danger/1579924/

    http://www.adelaidenow.com.au/beware-shonks-in-solar-panel-industry/story-e6frea6u-1226218596322

    • Bob_Wallace

      You anti-renewable energy people greatly exaggerate the solar panel fire problem.

      It’s a very, very minor problem mostly due to Australian knuckleheads.

      I’m leaving this comment up because it actually links to fire incidents. Further over-exaggerations will be trashed.

      • Candy

        Found this link, on rooftop solar power fire grid tied. 100 solar panels caused fire.

        Trenton firefighters battle rooftop solar-panel blazes

        http://www.nj.com/mercer/index.ssf/2012/03/trenton_firefighters_battle_ro.html

        • Bob_Wallace

          That’s four.

          Can’t say that is a major problem considering the millions of solar systems in operation.

          • James
          • Bob_Wallace

            Bull.

            That’s not an article about the cost of wind power. It’s an article about someone possibly gaming the system.

          • Tim

            @BOB, See those guys down under are right wind power cost 12,000 MW, better to use coal energy at $30MW.

          • Brian

            Now there bob, your wrong, we all know that wind power was exposed, it does not deliver base load energy just like grid solar rooftop solar power. This is what happens when you expose the truth, and put wind power to the test, it doesn’t work.

          • Troy

            Concerning that solar power can do this.

            They couldn’t spray flames backed by live current without risking electrocution”.

          • Lisa

            I read yesterday that you were going to keep this post, but your word doesn’t hold up?

            Your word is like the wave of the sea.

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