New Hampshire, USA — Memo to residents in California and New York, and investors across the U.S., seeking both profits and a green energy cause — you can now take a stake in a renewable energy project and get returns that are competitive with more conventional investment products.
“Right now there is a very limited number of equity players, specialized banks or investment banks, that are comfortable with the renewable energy space,” explains Mike Mendelsohn, senior financial analyst at NREL. “There’s not an easy way for direct customers or small investors to invest in projects.” Options include securitized renewable energy financing such as real-estate investment trusts (REIT) and master limited partnerships (MLP). At the moment, though, “REITs are sort of closed off to solar largely until there’s a private letter ruling,” Mendelsohn says, and MLP legislation specifically excludes solar and wind (but not geothermal), even though “it could take 10 words to open it to the renewable energy industry.”
“To rapidly deploy clean energy, the industry needs access to low-cost capital — and lots of it,” said Billy Parish, cofounder and president of Mosaic, which claims it has shepherded $1.1 million in investments from more than 400 investors to finance 12 rooftop solar projects in California, New Jersey, Arizona, and the Navajo Nation. “But the financing to develop solar projects just isn’t there. Banks are interested in underwriting a $25 million loan for a coal-fired power plant, but for a $100,000 rooftop solar plant the transaction costs are too high.”
Parish also tied together some other numbers to make Mosaic’s case: there’s $33 trillion in the U.S. investment marketplace tracked by the U.S. Social Investment Forum (SIF), of which $3.7 trillion is invested in “socially responsible investments.” And to support the notion of a crowdfunding-style vehicle, they claim Kickstarter participants provided more funding in 2012 for “creative projects” than did the National Endowments for the Arts, and are on pace to greatly widen that gap in 2013.
Calling the Crowd
Seeing an opportunity, this week Mosaic officially unveiled its online investment marketplace, with three more investment opportunities in solar-installed housing complexes across California: a 78-kW project in Salinas, a 55-kW project in Corte Madera, and a 102-kW project in San Bruno. Two other projects were made available only to “accredited investors,” which Mosaic defines as someone with at least $200,000 annual net income in each of the past two years, and with reasonable expectation to maintain that in 2013; or with $1 million of net worth excluding equity in a primary residence.
Mosaic promises a 4.5% annual return (net of servicing fees) with nine-year terms. That compares favorably to 10-year Treasuries that are currently squeaking by at 1.90%; CDs (0.5% annual percentage yield); bonds (5.20% average from 2003-2012); and the S&P (4.95% average annualized returns from 2003-2012). Mosaic investments are classified as senior debt to projects, exclusive of any government tax credits or cash grants, pointed out Greg Rosen, the company’s CIO.
Potential risks with these investments (which Mosaic execs deftly characterized as “non-zero”) involve credit, technology, operations, and weather. Mitigating those risks is Mosaic’s job, hiring third-party attorneys, and specialists in technology and insurance to review the projects — for example, requiring property damage insurance to cover storm damage repairs. But investors also need to examine a project’s prospectus and judge for themselves.
And then there’s the crowdfunding model itself. The JOBS act signed into law in April 2012, which includes a crowdfunding provision, hasn’t been implemented by the SEC, which is still trying to understand how crowdfunding meshes with traditional finance, Parish explained. “We’re working on something truly novel, and novel and regulators are a tough mix,” he quipped, adding that Mosaic has “a good relationship” and is in “ongoing conversation” with the SEC. Mosaic CFO Steve Richmond agreed that Mosaic is “eager to see the JOBS Act move forward,” but emphasized that “we don’t need it to run our business.”
Apparently Mosaic’s tapped into something. Four of its five initial projects sold out in less than 24 hrs, with more than 400 investors putting up between $25 and $30,000 — in total, over $313,000 with an average investment of $700. (That includes one of the accredited-investor-only deals, which is now revealed as a 35 kW solar install in Novato, CA, with 4.5% expected investor yield and a 108-month term.) One investor quoted by the company hailed such individualized access to clean energy as “a crucial step toward an authentic democracy.” Mosaic CEO Dan Rosen acknowledged the “pent-up demand” by “people [who] want strong returns and want to know what their money is invested in. Our marketplace allows people to sidestep Wall Street by investing in Main Street.”
With four projects now fully invested within a day of their offering, what’s the next move for Mosaic? Rosen emphasized that the firms’ priority is to make its processes more efficient and identify more high-quality projects in which to invest, more than refilling and maintaining the pipeline. Given the immediate and positive investor response, though, the company says it is prepping “quite a few” more projects in its pipeline to be available “within a few weeks” (the underwriting process typically takes 6-12 weeks), with a near-term goal of up to 10 projects available at a time. They also plan to open up investments in new locations; “we want to be able to finance projects anywhere in the world,” offered to the same CA/NY residents and accredited investors across the U.S., Parish said in the kickoff presentation.
Mosaic also plans to expand into other renewable energy beyond solar projects. The legal corporate name is “Solar Mosaic Inc.,” but company reps stress they want to be known as simply “Mosaic” to widen the perception of what they can offer. It says it is currently researching “other verticals,” but there are no non-solar deals in its pipeline nor any expected in the near-term future.