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Can crowd investors spur the clean energy transition?

Where developers struggle to raise funds, crowdfunding platforms can help clean energy projects get off the ground. But what are the risks involved in such investments, and what should individuals look out for before committing their money?

The rooftop solar modules of Dong Nam Viet Packaging’s factory in south-east Vietnam look nothing out of the ordinary. But what sets the installation apart from most other solar ventures in Southeast Asia, is that it is not backed by local banks or big international lenders. Instead, it was dozens of individuals who chipped in money to bring the project to life.

With climate anxiety on the rise, many citizens are keen to do their part, and a Berlin-based solar crowd investing platform is enabling them to do just that. 

A lot of people are concerned about climate change and want governments to do much more to address this crisis. By mobilising them and their capital, we can help them become part of the solution.

Martin Baart, founder and chief executive officer, ecoligo

“A lot of people are concerned about climate change and want governments to do much more to address this crisis. By mobilising them and their capital, we can help them become part of the solution,” said Martin Baart, founder and chief executive officer of ecoligo, the solar firm that made the installation happen by channelling finance from the platform ecoligo.investments.

The Dong Nam Viet solar installation is ecoligo’s first project in Southeast Asia and will be commissioned this month. Ecoligo will sell all the power produced to Dong Nam Viet Packaging and excess electricity generated on Sundays, when the factory is closed, will be sold to the national power grid under Vietnam’s feed-in tariff scheme.

With a price tag of €831,000 and total capacity of 994 kilowatt-peak, it is also ecoligo’s largest project to date. Founded in 2018, the platform has crowdfunded a total of €4.5 million to finance 40 projects in places such as Costa Rica, Kenya and Ghana.

It has signed another contract for a second project in Vietnam and is looking at other potential ventures in the country as well as in Thailand and the Philippines. It is also raising capital for projects in Ghana and Costa Rica.

Ecoligo focuses on commercial and industrial solar projects in emerging markets because Baart and his team are aiming for greater impact. “Companies are the growth engines of economies. Vietnam’s economy is growing fast, but to grow sustainably, corporations need to have sustainable energy,” he said.

Rather than altruism, it is the promise of financial returns that have drawn individuals to become clean energy investors. The project in Vietnam, for instance, will yield returns of 6.5 per cent each year.

Other stakeholders also get a slice of the benefits: Local customers through lower electricity bills, and local service providers that install and maintain the system.

The investors plough in sums ranging from €100 to €25,000 and, for now, only holders of German bank accounts can invest in ecoligo’s projects. Ecoligo plans to allow individuals across Europe to come on board, and recent harmonisation of European financial regulations have brought the goal within reach, Baart said.

Eventually, the platform wants to give citizens of the countries where the solar installations are sited the opportunity to invest in the projects. “We want to have this open to as many people as possible,” he said.

Various organisations worldwide, including in Asia, have used crowd investing to bring green projects to life, although none of the platforms in the region is geared towards clean energy investments. In Europe, the France-based crowdfunding platform Lumo has been backing renewables for years.

Nicolas Payen, co-founder and chief executive at Positive Energy Limited, a Singapore-based digital platform for renewable investments, said: “Crowdfunding platforms give individuals access to investment opportunities that they cannot access another way. They would not know where to go, or how to do it.”

Besides the ability to grow their capital and have a positive environmental and social impact, another benefit of crowd investing in green initiatives is that individuals get to pick projects they care about, be they recycling facilities, renewables or even a project close to their hometown, he said.

But before committing their hard-earned savings, individuals need to fully understand the benefits and risks involved and be satisfied with the crowd investing platform’s due diligence and track record of projects.

Investors should find out the arrangements for handling their money: Where are funds kept? If the platform closes down, will their investment be lost or is there an appointed party that will assist with debt recovery?

As with most investments, ecoligo’s projects are not without risks. If equipment is damaged during construction or the installation underperforms upon completion, investment returns may take a hit. Even if the solar modules deliver electricity as expected, financial issues may still arise if customers default on their payments. In the worst-case scenario, investors could lose all their money.

Ecoligo is transparent about such risks, even as it takes steps to mitigate them, Baart told Eco-Business. The company performs its own due diligence on every customer, assessing their financial performance. During construction, it only works with technical partners that have a proven track record of installing rooftop solar modules.

When the coronavirus began to disrupt business operations globally earlier this year, ecoligo announced a guarantee fund to safeguard investors against possible impacts of the pandemic. If a customer fails to meet its financial obligations, ecoligo still owns the installation and could move it elsewhere to generate and sell electricity.

Baart said that all ecoligo’s crowd investors have received the returns they were promised, and the only two issues it has faced were due to project delays in Ghana and Kenya, both of which were eventually resolved. “So far, every customer in every project has been paying their bills,” he said.

Crowdfunding—the future of renewable energy finance?

Clean energy developers typically face challenges approaching lenders such as banks. Many firms lament the high interest rates, banks that dictate the sum they will hand out, and financiers’ tendency to shirk long tenure loans.

In nascent clean energy markets, banks often lack experience in financing renewables. This can render due diligence checks laborious and set a project developer back tens of thousands of dollars, making smaller clean energy projects unviable. In addition, developers usually need to approach a number of banks and evaluate each option. “That slows project development down,” Baart said.

Ecoligo has sought to overcome these challenges through crowdfunding and undertaking due diligence of customers’ financial position as well as its technical partners.

It has also gained enough experience and made use of standardised contracts to streamline the process and cut due diligence costs to match smaller projects. It now knows exactly which technical details need looking into, while contracts only need to be adjusted to suit local regulations, rather than be subjected to tedious reviews by financial institutions.

“We have reinvented the process. We asked ourselves, how can we avoid expensive and inefficient due diligence, which banks only perform because they do not understand solar projects? How can we bring costs down and realise smaller projects? And how we made it work was by engaging crowd investors who are much more flexible than banks,” said Baart.

The investment individuals can make may be small, but it is really meaningful.

Nicolas Payen, co-founder and chief executive officer, Positive Energy Limited

The simplicity and convenience of crowdfunding platforms are so appealing that its features have been replicated elsewhere in the renewable energy space. Positive Energy Limited has established itself as a virtual platform that showcases investment opportunities to big investors. Developers can submit their project to Payen and his team, who evaluate the documents and build a financial model before publishing it on their website.

“Developers looking for funding often do not really know where to go. We offer to help them prepare investment materials using our online tool, which investors can then access. Developers gain access to a whole network of investors with clear interest to invest in renewable energy, and they can work together to make this project happen,” Payen told Eco-Business.

Today, there are about 500 investors on Positive Energy’s platform, and the company expects to grow its network to 3,000 within the next four years. “We make sure developers have a high chance of getting their projects financed,” said Payen.

Crowd investing may only support small-scale projects, however. Few individuals have sufficient funds to invest in utility-scale installations and, even if they did, the simplicity of crowdsourcing would be lost to the tighter conditions that come with higher loans.

While this means big investors are still needed for large-scale wind and solar farms, small-scale projects enabled by crowd investing can play a role to help the world meet its Paris Agreement climate goals, Baart said.

“The investment individuals can make may be small, but it is really meaningful,” Payen added.

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