Here’s a puzzler for our new era: Let’s say you want to set aside some money. Where should you put it?
Over the last ten years the stock market has become increasingly volatile, and yields for real estate investments, bonds, and CDs are all at or near 10-year lows. The old advice to diversify and hold certainly still applies. But maybe it’s time to start rethinking what we mean by the word “diversify.”
One overlooked asset class, only now emerging as a possibility for individuals, is clean energy. Until recently, loans to support particular energy projects were the province of big banks, the government, and a few wealthy individuals. That’s about to change.
We’re living through an unprecedented solar boom. Since the late 1970s, the cost of solar cells has declined from upwards of $75 per watt to around 75 cents per watt today. These price declines have in turn driven an increase in demand for solar power. We installed about 17 times more solar capacity this decade than analysts expected. In 2012 alone, U.S. solar energy production increased by 500%.Emerging energy technologies like solar power are often decentralized. This is good for the health and resiliency of our communities, but bad for securing financing from traditional sources, such as banks, which prefer to put their capital in large energy projects. The result? Even if it makes sense for a property owner to put up a rooftop solar array, she often can’t secure capital at a low enough cost to make it happen. Talk to almost anyone in the solar industry today and they’ll tell you that the biggest barriers to massive solar deployment are no longer about technology. They’re about finance.
Enter the hackers. As engineers and manufacturers have been working to drive down the cost of solar panels, a new generation of entrepreneurs has been pioneering new models of investment. They’re using satellites to reduce solar siting costs, algorithms to streamline solar loan approval, and platforms borrowed from the social networking and crowdfunding worlds to create a distributed financing system to match our new, distributed energy system.
My company, Mosaic, is part of this new wave of entrepreneurship. Via our platform, anyone can invest as little as $25 in specific solar energy projects. We’re also building a borrower platform and proprietary software that will streamline the solar loan underwriting process. The idea is to close the solar financing gap while also giving people a way in tangible projects.
Mosaic’s crowdfunded loans for clean energy function much like fixed-income assets such as bonds. Lenders provide debt, and borrowers are obligated to pay down their loan, plus interest, on a fixed schedule. Initially, it will probably be necessary for lenders to keep their money invested for a fixed term, though secondary markets that provide some liquidity for loans will develop over time.
As with any investment, making loans to finance solar energy projects comes with certain risks. In general, however, small-scale solar lending is relatively safe. Mosaic lenders provide debt rather than equity, meaning they have a senior position in projects mixing debt and equity. In the event of a default, the solar equipment serves as collateral. Manufacturers also now regularly offer 25-year warranties on both solar panels and solar inverters. Insurance for catastrophic events such as fires or storms provide a final layer of protection.
Last month, Mosaic listed its first public solar energy investments. In 24, hours the projects sold out, with more than 400 investors providing $315,000 in loans to solar arrays located on four affordable housing complexes. Projected annual returns for the investments are 4.5%. This return is higher than the S&P 500 has traded over the past ten years (~3%). It also compares favorably with historical rates for most bonds. Likewise, a return of 4.5% is much higher than returns on CDs and 10-Year Treasuries.
More than money, the returns Mosaic’s initial investors are making can also be measured in good jobs and the continued growth of clean energy. That is, we’re not only investing in our personal financial futures, but also in the future of our communities and our planet.
Mosaic recently launched its largest solar energy project to date and it’s open to investors now. We invite you to join us at www.joinmosaic.com.