– President Barack Obama, June 25, 2013
On Tuesday US president Obama announced a comprehensive climate action plan, calling amongst others, for a doubling of renewable energy in the U.S. by 2020. A critical success factor in achieving this goal will be the participation of communities in the ownership and development of clean energy solutions such as renewable energy projects.
The climate change minister of the UK, Greg Barker, has already come to that conclusion and, a day before Obama's speech, hailed crowdfunding as an “incredible powerful” funding model to accelerate the development of low-carbon generation capacity and establish a new decentralised energy system.
There are significant economic benefits in direct investments in renewable energy via crowdfunding compared to traditional equity or bonds investments. Asset-backed renewable energy investments such as the installation of wind, solar or hydro assets can achieve very attractive returns and generate consistent and stable income as the production and sale of energy is often subsidised and underwritten by governments. Such assets continue to generate valuable income and retain capital value during any market conditions. They are not correlated with the performance of stock or bond markets but with inflation. This is in stark contrast to complex financial derivatives or opaque private equity investments.
Furthermore crowdfunding makes it economically viable to spread investments over a large number of projects achieving a wide risk diversification. Crowdfunding solutions that are beginning to emerge are simple, transparent and easy to manage. They offer long term investments of “patient” capital via investment products such as debentures, community shares schemes, or asset back permanent debt with tenors around the 20 year mark. Should it be required such assets can potentially be sold on emerging secondary markets.
On top of the economic benefits such investments have a compelling social benefit as they reduce the community's carbon footprint and contribute to increasing community cohesion. Community owned “bottom-up projects” provide for committed shareholder participation and helps members to establish a clear link between local generation and local consumption. Such benefits do not necessarily materialize from top–down, corporate developments. If local people are not involved and benefits are not shared amongst community members, renewable energy projects often receive less acceptance.
Community owned renewable energy projects come in many shapes and sizes, growing from the diverse needs and available resources of the local community. It can be anything from a small solar PV on a school roof to a wind farm on the edge of town or a small hydro project owned by a nearby village. Projects also vary by technology, size, structure, governance, funding options and ownership features.
Crowdfunding offers an efficient collaborative platform which supports the exploitation of synergies between different community projects and offers efficient backoffice procedures, reducing the overall cost of their development. In addition, it accommodates various ownership structures and even allows for co-investment by institutional investors. By incorporating and supporting crowdfunding solutions, the new US climate action can indeed become an environmental and economic success story made possible by ordinary Americans.
Get in touch
Crowdvalley now has an open demonstration site for the energy & natural resources sector. Here is the link for anyone who'd like to join: https://infra.crowdvalley.com/networks/energy.
I also invite you to get in touch with me if you have an interest in this area at firstname.lastname@example.org.
 In case FiT (Feed-in-tariffs) are index liked to inflation such as RPI (retail price index)
Rex is an innovative banker with more than 15 years experience in retail banking, treasury and commodity trading at Commerzbank, J.P. Morgan and ABB Financial Services. Through his passion for entrepreneurship and new markets he got involved during the dot-com era in building up a business incubation unit for ABB, subsequently spinning off a company which pioneered the implementation of the European emissions trading scheme. He continued his career in the climate change sector first by joining EcoSecurties, a leading startup company in developing carbon reduction projects worldwide, and more recently as director in the environmental markets team of BNP Paribas.
Rex strongly believes that crowdfunding will cause a paradigm shift in the financial service industry and that it will make a significant contribution to the transition towards a sustainable economy.