“It’s a way for you to create a more secure future for your finances, your family and the world you live in”, according to Abundance Generation. Operating under the banner of “democratic finance”, the site is one of a growing band of alternative investment platforms making waves in the renewables business, and, more importantly perhaps, sending a signal to investors and policymakers.
“Crowdfunding has opened up renewables to a broader investment community by showing that it isn’t just something for ‘greens’ who are happy with lower returns; it’s in fact a sound financial investment that is also able to benefit our society and environment too”, said Karina Sidenius, Marketing Executive at Abundance.
Established in 2011 with a view to democratising investment in renewables, the platform has attracted close to 2,000 backers and over £11m in investment so far, all while giving supporters a reason to believe that crowdfunding has a part to play in the low carbon economy.
Backers on Abundance Generation
In an interview with BusinessGreen, Greg Baker, the UK’s Minister for Climate Change, called crowdfunding an “incredibly powerful” way to create a “decentralised energy system, and help achieve the goal of turning the Big Six into the Big 60,000”. There is arguably no greater impediment to renewables than lack of financing, and the emergence of dedicated investment platforms marks an important first step on the path to renewable and decentralised power.
Crowd Energy, Mosaic, Trillion Fund: each has done a great deal to underline the appetite for community-scale renewables projects and demonstrate that crowdfunding can ignite interest in the sector.
“Crowdfunding platforms have created a new way for individuals, families and communities to support and take a stake in clean energy projects”, said Joss Garman, Associate Director for Energy, Transport and Climate Change at the Institute for Public Policy Research. “Given the returns available on many of these energy projects, and the willingness of many people to invest small – or even larger – sums in them, crowdfunding facilities provide the means by which to connect them with one another. By broadening the pool of people who are able to own a part of our energy system, crowdfunding is helping to democratise the sector and to provide a much-needed new source of financing.”
Benefits to the investor
The premise is simple: investors need only choose from a list of projects and the amount they want to invest, and they will receive a return on the project once it’s operational.
“Unlike traditional investing via funds, which can demand starting amounts of £1,000 plus from investors, crowdfunding typically requires very low minimum investments, from as little as £5 (although £50 or £500 minimums are more normal)”, said Rebecca O’Connor, Content and Communications Director of Trillion Fund. “This means people who have smaller amounts of spare cash to put aside (but are not less savvy investors) can get involved. Crowdfunding also appeals to the growing band of ‘self-directed’ investors; people who do not have a high enough net worth to afford financial advice, but do have enough spare cash to save and invest.”
In addition, the risks are relatively minor; operational projects generate steady, long-term revenue flows, supported by government incentives linked to inflation, which means they function much like income investments that deliver a dividend every few months. O’Connor added that the framework gives investors some degree of certainty they will get a decent risk-adjusted return at a level that beats savings rates – albeit with greater risks – if they are refinancing existing assets.
Renewables and crowdfunding are well suited, considering campaigns often take a social or environmental strand and routinely target areas that escape the attention of traditional investors, for whom quick returns take precedent.
“Community projects benefit local people because they give them more energy security and fewer carbon emissions, as well as lower bills in some locations”, said O’Connor. “Furthermore, there is a sense that renewable energy, which is a free and limitless resource, should be owned by ordinary people, and not companies hungry for pure profit (who are disinclined to develop it anyway because in general it is not profitable enough for them). Giving people a stake in the development of renewables ultimately means that more projects will be approved and built.”
Community and company
This renewables crowdfunding movement is particularly notable in the UK, though it’s in Germany that the fruits of community-funded renewables can best be seen, with over 50 percent of renewable capacity community-owned. Already responsible for €63bn in the decade up to 2013, there are now predictions that approximately 20 percent of UK renewables could be people-powered by 2020. However, the phenomenon is not necessarily exclusive to individuals, and corporate demand for renewable energy, as well as a willingness to participate in community-scale projects, is on the up.
Businesses can help locate the best opportunities and connect them with investors
“Businesses stand to gain huge cost savings and new revenue streams from the development of renewable energy on their land or premises, or even just in the local area”, said O’Connor. “Supporting local projects is great marketing; offering local people a stake in an installation on your building or in a local business park is even better. Businesses can match fund projects, putting in half of the loan or investment and offering the rest to the crowd. The sense of a shared interest and a common goal between businesses and local people is very positive, and the presence of a commercial interest can give individuals more confidence in the project. Businesses that have installed their own projects, from IKEA to small holdings in the Dales, have seen energy bills fall to virtually zero in some cases.”
Garman added: “Since many renewable projects are relatively small-scale and dotted all over the country, businesses can help locate the best opportunities and connect them with investors. Businesses can also offer their expertise and understanding of what is and is not likely to be a successful development to screen out the riskiest projects. Given the scale of expansion foreseen in low-carbon energy, there should be ample opportunities for businesses to challenge the dominance of the big corporations that currently dominate the market, and you can see precedents for this already happening in more advanced renewable energy economies like Germany, Denmark and California, where the ownership of the energy system is much less concentrated in the hands of a few.”
According to Sidenius, business could have a part to play either by working alongside developers to install renewable measures themselves, or by investing in the projects to secure both the business and workers with a long-term income. Already, Ecology Building Society has made one investment on Abundance and expects to make more in the years ahead in order to meet its costs, pay returns to savers, and grow its capital.
While it’s true that crowdfunding hands the impetus to the individuals who make a community, these projects can reduce energy costs for businesses too, and promise valuable reputational points for participating companies. Responsible companies are always looking for an opportunity to demonstrate their social contribution, and involvement in a crowd- or community-funded project not only allows them to do this, but also to build a relationship with consumers. Crowdfunding has received attention precisely because it allows consumers to play more of a role in the investment process, although businesses stand to benefit a great deal from the shift.