Let’s get one thing straight at the outset: the solar crowdsourcing company Mosaic isn’t a community-owned solar developer, and it is not the “Kickstarter of solar” as so many have labeled it.
Under community solar, local customers purchase power directly from the system or actually own some of the panels. And under a Kickstarter model, investors typically don’t get monetary compensation for putting money into a project.
Mosaic doesn’t even call itself a “crowdfunding” company, as many state regulators won’t let it use that term. So Mosaic uses “crowdsourcing” instead.
“That’s not us,” said Greg Rosen, chief investment officer for Mosaic, in an interview. “As you can see, it’s a little challenging as we enter the market with a new concept to explain.”
Actually, Rosen explained the model quite well in our interview. The firm crowdsources pools of money from individuals and institutional investors to invest in solar projects, with the goal of making them steady, risk-weighted returns. Although crowdsourcing has a warm, fuzzy, community-like sound to it, Mosaic is simply another innovative financial vehicle for bringing cold, hard cash into the solar industry.
“At the end of the day, Mosaic investors are there to earn a rate of return on their investments,” said Rosen.
Next month, I will be hosting a panel at GTM’s Solar Market Insight conference on trends in crowdsourced and community solar, parsing the differences and similarities in how businesses in those sectors operate. Rosen will be there to chat about Mosaic’s business model, along with a few other leading firms in this nascent part of the industry.
I sat down to chat with Rosen about how Mosaic (which recently dropped “solar” from its name) sees the crowdsourcing model evolving. Come join us at the Solar Market Insight event to network with thought leaders like Rosen who are pioneering new models in solar financing and development.
Greentech Media: Let’s talk about projects in your portfolio. Do you have a target for size and type of projects?
Greg Rosen: We originally started out financing some pretty small projects. We’ve quickly moved up in size. Our sweet spot right now is between 500 kilowatts and 3 megawatts per site.
Having said that, we’re very interested in working on smaller projects that have similar characteristics, such as similar PPAs or similar equipment and a performance guarantee. So we’re actually doing portfolios of a dozen more projects, each of which are under 100 kilowatts. On the other side of the scale, we’re able to partner with larger financial institutions. We have a project that is actually 12 megawatts.
We are also supportive of community solar and are in discussions to finance our first community solar projects where some people are getting the actual power and some people are getting a financial return.
GTM: Many of those are existing projects. Is the crowdsourcing model bringing new projects on-line?
GR: We do both refinancing and we finance brand new projects. Take the project we’re doing with Pristine Sun and PG&E as the offtaker — we have three of those on the platform and those are new construction. We have a mix, so it really depends on what the project looks like.
Interestingly enough, I think people like the concept of financing new construction, but there are others who don’t want to wait and just want their money. So we want to balance the diversity and expectations of our customers.
GTM: So how are you actually making money on each transaction?
GR: We’re set up like other financial institutions. We charge an upfront fee to the borrower and then we charge a small ongoing service fee to the crowd. So the service fee is 1 percent per year of the assets under management. So if we make a loan at 6.5 percent to a borrower, the net interest rate on the notes would be 1 percent less than that, at 5.5 percent.
GTM: As a financial institution doing something new, what are the most complicated regulatory factors you have to navigate?
GR: Any business, including Mosaic, needs to follow a medley of federal, state and, if applicable, local laws. We are highly regulated, but that’s something we’ve gotten comfortable with.
There’s certainly a lot of filings, and many of them have fees associated with them at the state level. Similar to solar permitting, if you’re trying to do crowdsourcing there’s a lot of paperwork that is unique and somewhat arbitrary. So putting together a universal state permitting process for crowdsourcing would be helpful.
Having some better understanding about standardization and information requirements would also be helpful. We’re part of truSolar, where many companies are looking at creating an industry standard around risk in commercial and distributed generation solar.
I liken crowdsourcing to net metering in 2000. Each state has a lot of different regulations, and some of them are progressive, and some are just set up to prohibit any kind of net metering. I think that over time crowdsourcing, at least at a state level, is probably going to mirror that, where states are going to exhibit best practices that will be slowly promulgated across the 50 states. At a national level, the laws are sufficiently in place for us to scale. Could they be better? Could they be more helpful? Sure. But they’re good enough for us to roll out and scale what we’re trying to do.
GTM: So as the model matures and the regulations improve, what will crowdsourcing look like five or ten years from now?
GR: We’re big believers in a couple of things. Number one: crawl, walk, run. So we are just trying to go into the marketplace to forge a regulatory pathway that’s scalable and replicable.
Starting about a year ago, we ramped up our first financial offering, which is our industry-facing project featuring senior secured term debt for solar projects. And for investors, there are notes backed by that debt.
As time goes on, we will expand our product offering both within the photovoltaic space and also we’ll start to look at other kinds of technologies and a broader geographic area. As we do that, we want make sure we’re good at one thing. We have our first core product, and then we’ll launch a second and a third. We want to do those well and not try to offer too much product diversification too quickly.
GTM: Can you be more specific about other technologies you’d get into?
GR: Our roots are really in the renewable energy space. But there are a lot of complements to solar, such as energy efficiency and storage, where there is overlap in who the developers are and how the technologies integrate.
I think if you look at other products, there’s an opportunity in terms of the way of other renewable energy is financed. There could be benefits to the way our platform operates and provide other services — it’s certainly a possibility.
But I think that the solar companies are often trying to do too much. As a result, they end up being less focused in what they’re offering. So we want to focus on the right markets with the right growth potential given our core skill set. We want to be careful about what we’re doing and not try to conquer the world too early.
GTM: Innovation is often broken down into three different areas: manufacturing, hardware and installation, and then finance. How crucial is financial innovation in getting solar to scale relative to these other factors?
There are two pieces to financial innovation. One is getting a lower cost of capital, a strong lowering of the risk-weighted cost of capital out to the market.
Equally important is developing a process by which developers or other installers can cut the soft costs associated with customer acquisition and customer financing. That is something that’s rather immature at this stage, as you look at the way financing companies interact with their customers and intermediaries.
That’s something we’re going to see evolve as the industry adopts best practices. A lot of value will be created in the space as companies improve at appropriately getting financing to developers in a matter of days, rather than months.
Want to know more about the future of solar crowdsourcing and financial innovation? Register for GTM’s Solar Market Insight Conference in San Diego by Monday, November 11, 2013 to receive a $400 early bird discount. To view the full agenda and speaker list, checkout the event website.
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