Last year Netherlands-based Windcentrale used crowdfunding to successfully raise more than £1m in 13 hours to purchase a wind turbine for 1,700 households. The Dutch business, which was founded just four years ago, has so far has raised more than £11m through crowdfunding for wind energy projects.
It is not the only business crowdfunding renewable energy projects. In the UK, Abundance Generation has raised more than £6m for renewable energy projects, while in the US Mosaic has raised around £5m for solar projects. Crowdfunding then has clearly evolved from a donation-based niche to a serious source of funding for kick-starting renewable energy projects.
In essence, crowdfunding is where businesses and projects are directly funded by large numbers of people investing a relatively small amount of money.
The most common type is investment crowdfunding, whereby individuals invest by purchasing equity in a project or business, enabling developers to bypass large corporate investment funds. In rewards-based crowdfunding, rather than taking an equity stake, contributors fund an idea, such as research on a prototype at the outset of a project. In return, if the idea is successful, investors will receive a reward to recognise their commitment.
Advocates of crowdfunding say that it allows small developers to initiate projects that would otherwise struggle to gain access to finance. At the same time crowdfunding allows investors to contribute to improving the environment while making a return on their investment. It has been called democratic finance because people choose exactly what use their investment is put to.
Like all investments, crowdfunding carries an element of financial risk, which will vary depending on the project funded. For a renewable project this could include a significant collapse in the price of energy; extended periods of lower than expected energy production; and catastrophic operational failure outside of normal maintenance warranties and contracts. Some sceptics argue that crowdfunding can expose unwitting investors to high-risk and unproven ventures and risks that they might not fully comprehend.
Analysis by NPD Solarbuzz said that by August 2014 the cumulative capacity of the UK’s PV market had grown to a capacity of 5GW. But At current levels the contribution made by crowdfunding is negligible in comparison to the billions needed to transform energy infrastructure in the UK to a low carbon alternative. In March the government’s Green Investment Bank has estimated that Britain’s low-carbon energy investment is currently running at less than half of the £200bn needed over the next decade to meet emissions targets by 2020. Nevertheless, small-scale renewable projects have a huge role to play both in promoting sustainable behaviour and as a means of people-power kick-starting renewable energy projects that are not big enough for corporate investors. Power to the people.