Fixes looks at solutions to social problems and why they work.

If you wanted to get large numbers of people actively engaged in helping to solve global warming, how might you go about it? For years, the main approach in the environmental movement has been to sound the alarm bell and implore people to consume less, switch to green products, recycle, and speak up to companies and politicians. It hasn’t always been an easy sell. However, if the approach of a promising Oakland-based start-up takes hold, there may be another line of action that could become available to ordinary people: directly financing renewable energy.

In January, a company called Mosaic, made a splash in the renewable energy world when it introduced a crowd-funding platform that makes it possible for small, non-accredited investors to earn interest financing clean energy projects. When Mosaic posted its first four investments online – solar projects offering 4.5 percent returns to investors who could participate with loans as small as $25 — the company’s co-founder, Billy Parish, thought it would take a month to raise the $313,000 required. Within 24 hours, 435 people had invested and the projects were sold out. The company had spent just $1,000 on marketing. All told, Mosaic has raised $1.1 million for a dozen solar projects to date. Now it is connecting with other solar developers to identify new projects for financing. More than 10,000 people have already signed on and are standing by to invest.

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A generation and a half after the first Earth Day, we may be witnessing the coming of age of solar power. Last year, when Warren Buffett’s MidAmerican Energy Holdings Company floated an $850 million bond offering for the Topaz Solar Farm, in California, it was the first time a public bond offering for a U.S. photovoltaic power project had been deemed “investment grade.” The offering was oversubscribed by more than $400 million and the company is now planning a second round to raise potentially $1.265 billion more. And last month, it was reported that First Solar, a manufacturer of solar panels, had signed an agreement with the El Paso Electric Company to sell its power for less than half the cost of power from typical coal plants. In 2011, almost half of the 208 gigawatts of electric capacity added globally came from renewable power, primarily wind and solar (pdf), and almost half of the additional power capacity in the European Union came from solar alone.

A big reason is cost. Over the past five years, the price of photovoltaic panels has declined by about 80 percent. We’re used to hearing about Moore’s Law, which refers to the steady and predictable increases in power and decline in cost of integrated circuits. Swanson’s Law holds that each time global manufacturing capacity of photovoltaic cells doubles, the costs fall by 20 percent.

Crowdfunding holds promise for the developing world, where financing for renewable energy is hard to come by

From 1977 to 2013, the price per watt of crystalline silicon photovoltaic cells dropped from about $77 per watt to 74 cents per watt. Couple that with another innovation — the spread of companies that lease, rather than sell, solar power systems – add in some tax incentives — and decentralized solar has become a viable option for many homeowners and businesses. This is a far cry from the time when buying a solar system meant paying upfront for 25 or 30 years of power.

If it seems far-fetched to imagine millions of Americans becoming mini energy producers, just look at Germany, where 51 percent of the country’s clean energy production is owned by individuals or farmers, while major utilities control just 6.5 percent of it.

One of the Mosaic financed systems now sits atop a 26,000-square-foot building in Oakland’s San Antonio neighborhood owned by the nonprofit Youth Employment Partnership, which provides education and workforce skills training to a thousand teenagers each year. YEP’s system, which cost about $265,000, was financed by a combination of its own funds, government and private grants, and a crowdfunded loan. Its utility bills have dropped by 85 percent. Because of the grants, YEP is leasing its system for 10 years and will have the ability to purchase it for a low price after that period. (Without subsidies, the lease would likely run for 20 or 25 years.) YEP’s monthly utility and lease outlays are less than before. “By year 10 we can own the system outright and then most of our power will be free,” explained its executive director, Michele Clark. “But what really matters is that it frees up money that we can use for our case management and mental health work.”

If electricity costs continue to rise – for many consumers, they have tripled since 1980 – the economics will prove more favorable. “If you buy solar, you fix your energy costs for the next 25 years or longer,” explains Marco Krapels, executive vice president of Rabobank, a major solar financier, who is a member of Mosaic’s board of directors. “You can have power independence. And it happens to be clean.”

There is another benefit, added Clark. The system aligns with YEP’s educational mission. “We have this great little computer program that shows us the electricity we’re producing,” she said. “We look at it on sunny days and see it at the top of the chart and discuss it. Then we take our students on field trips to the roof.”

Last June, Bloomberg New Energy Finance published a report (pdf) estimating that the expected continuing surge in demand for solar systems over the next nine years in the United States would require $62 billion in new financing. That’s a big gap. Even though more than half of American adults say they are “alarmed” or “concerned” about global warming and about a quarter of the nation’s rooftops are suitable for solar power installations (pdf), including two thirds of those in New York [1], only a small number of U.S. banks are involved in financing solar projects. Many lack the expertise to evaluate the risks; others have little interest in modest power projects. “Solar is still by and large an asset class that’s not well understood,” said Krapels, of Rabobank.

But peer-to-peer lenders like Prosper.com and Lending Club – once considered improbable businesses — have revealed new possibilities. Combined, they have brokered over $1.8 billion in loans, offering lower interest rates and higher returns than borrowers or lenders could get from banks. At the same time, crowdfunders like Kickstarter, RocketHub, Indiegogo, Seedmatch and the aptly named Crowdfunder, have helped groups raise hundreds of millions of dollars for a multitude of projects and business ventures. Kiva has built a bridge that has allowed individuals to lend over $400 million to microfinance institutions. Now, we’re seeing the early application of this idea to clean energy, with Mosaic and others, including SunFunder and Milaap.

How many people will want to participate? How quickly could the pipeline of investments grow? How will the investments perform? All these are open questions. But other crowdfunders have solved them. Currently, one bottleneck is the time and expense of due diligence for each deal. Mosaic is a founding member of a working group called TruSolar which is developing standards to streamline this process and ensure project quality. Mosaic is also drawing on the experience of online business lenders like On Deck Capital and Kabbage, which leverage large data sets to evaluate lending risks cost effectively. “We’re building a portal for solar developers to submit project information electronically in an efficient manner that automates initial credit screening and analysis,” says Parish. “This will make the loan process much simpler, faster and more transparent for borrowers — and improve project quality for our investors.”

Another concern is panel quality, explains Conrad Burke, global marketing director for DuPont Photovoltaic Solutions, which is also a TruSolar member. As costs have plummeted, solar module manufacturers have had to fight for survival. “In such an overcapacity situation, corners are being cut,” he said. Some manufacturers have compromised on the quality of things like panel backsheets, which protect solar cells. “We’ve seen panels which are less than 10 years old deteriorating or failing,” he added. “You have companies which are two or three years old warrantying products for 25 years. We have to raise awareness about this. The industry can ill afford a black eye.”

All power systems fail at times, but if solar modules are not highly reliable over their warranty periods, the economic argument for their use is much weaker.

Related More From Fixes Read previous contributions to this series.

Crowdfunding holds particular promise for the developing world, where financing for renewable energy is even harder to come by — and where distributed solar power is an urgent need, observes Justin Guay, of the Sierra Club’s international climate program. The irony is that very poor people in the developing world who lack electricity pay far more for kerosene and candles than they would for solar energy. Over a decade, a poor family may spend $1,800 on these energy sources, five or six times what it would take to install a home solar system that could power lights, cellphones, computers, television, and so forth.

Today, with NGO, businesses and microfinance networks reaching into villages and shantytowns around the world, an infrastructure exists to deploy solar systems using a sustainable leasing business model. Just replacing kerosene — a fire hazard and contributor to pulmonary disease – with solar would yield enormous health benefits, reduce greenhouse gases, improve quality of life and expand economic and educational opportunities.

But the money needs to be fronted. “Large international financial organizations like the World Bank are not structured to do it,” says Guay. “Their bread and butter is to push out a huge coal plant or a hydro dam. If we’re looking at a distributed renewals future, crowdfunding is an exciting approach, particularly if it is coupled with the ability to invest through mobile phones.”

The biggest levers remain government policies. Domestically, if the U.S. government changed regulations around Real Estate Investment Trusts and Master Limited Partnerships (a bill recently introduced by Senator Chris Coons aims to do the latter), it could open up billions for renewable energy investments. Internationally, governments and multilaterals could reduce the perceived risk of solar investments through loan guarantees and other incentives.

But all that takes political will. Which gets back to the crowdsourcing ethos: let everyone participate in the solution and they will get more engaged. “Even if people invest $25, it helps them to think about energy in a completely new way,” says Parish. “They can be an energy producer, not just an energy consumer, and it will help them understand how our energy system works.”

“If we are going to solve this problem,” he adds, “We need to build a propositional movement, not just an oppositional movement. We’ll need to tap into people’s enlightened self interest.”

FOOTNOTES

[1] Solar power does best in the south, of course — a system in San Diego provides about 50 percent more energy over the course of a year than a similar one in Seattle (pdf) — but it is suitable for northern areas, too. New York City is home to 560 solar projects that generate 11.5 megawatts of power. But the city has the rooftop capacity to increase its solar output 500 fold. Theoretically, it could supply 40 percent of its peak electricity needs from solar. (For a look at the city’s rooftop capacity in detail, check out this cool interactive map developed by Sustainable CUNY. According to the calculations, the Metropolitan Museum of Art’s roof has enough space to generate the carbon saving equivalent of 6,600 trees – more than a quarter of the total in Central Park.)

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David Bornstein is the author of “How to Change the World,” which has been published in 20 languages, and “The Price of a Dream: The Story of the Grameen Bank,” and is co-author of “Social Entrepreneurship: What Everyone Needs to Know.” He is a co-founder of the Solutions Journalism Network, which supports rigorous reporting about responses to social problems.