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Crowdfunding Renewable Energy: A UK Market Insight

Crowdfunding Renewable Energy: A UK Market Insight

Crowdfunding is the practice of funding a project or venture by raising monetary contributions from multiple investors, otherwise referred to as peer 2 peer (p2p) lending. The rise in popularity has in part been through growing interconnectivity online coupled with a need for alternative funding options. In 2015, over £30 billion was achieved this way across a range of industries globally. How great is the potential of crowdfunding in the energy sector, and how will this impact the UK market?

Renewable Energy Funding

Political uncertainty and over spending of renewable energy technology (RET) budgets has left the UK in a challenging situation. The attractiveness of Britain for investors in renewable energy projects are at an all-time low a new report found. The UK routinely topped the annual league table for attractiveness to clean energy companies, run by consultancy Ernst & Young (EY). The UK now sits at 13th in the league table.

Part of this weakening position has been down to plans to end the Renewables Obligation (the first public support scheme for the sector) 2 years early from March 2017 leaving the industry looking for alternative funding options. The use of innovative funding arrangements including Power Purchase Agreement (PPA) is now also proving to be ineffective for solar PV projects.

As such, a funding gap has steadily emerged, opening opportunities for alternative funding approaches.

Crowdfunding Emergence

The first reference to crowdfunding RET’s dates back to 2012 through Indiegogo.

The sector has grown at a staggering pace. A large annual conference is dedicated to the sector, and a European association that brings together a number of platforms involved in renewable energy. In March 2016, when one of the few reports in the field was published, there were 29 active platforms worldwide and 13 in the pipeline. Of this, the UK is serviced by 11 active platforms. Three models of crowdfunding are recognised. The energy sector typically adopt lending and equity arrangements as outlined below.

SourceCrowdfunder

A host of factors underpin the growth of such platforms. According to Trillion Fund investors find the sector attractive due to low interest rates across Europe, attractive mid term investing timescales, desire to support renewable energy and environmental causes. Willingness to participate in crowdfunding is at an all time high, but who are the UK leaders?

Case Study: Abundance

Background

Abundance set up in 2014 and has raised £20.8 million across 17 projects, returning £3.7 million pounds to investors. The platform is also part of the European project CrowdFundRES, which aims to unleash the potential of crowdfunding for financing renewable energy projects.

Projects include a range of technologies and scales from solar PV through to hydro. More innovative projects are now entering the investment portfolio with the likes of refinancing operational bioliquid plants , which attract expected returns of 8-12% IRR.

More than just another “investment”…..

Tom Harwood, Operations Manager at Abundance Investments explains “crowdfunding can be a competitive financing option for many renewable energy projects, but it also typically fills a gap in the market for small-to-medium-sized projects which struggle to get funding from traditional sources like the banks.” Furthermore, he says that crowdfunding gives people a direct connection to renewable energy projects, increasing local support for them.

Post-Subsidy Era

The latest information published by Euro Crowd found that many industry leaders felt that 2015 was “peak p2p”, with many of the new projects being put forward not always worthy of being funded. The data collated interviews with leading P2P directors and found a number of barriers to upscaling crowdfunding including:

  • Lack of quality of projects available
  • Subsidy uncertainty in Spain / Britain / Germany
  • Lack of technical knowledge with new technologies
  • Lack of financial literacy when operating in emerging markets

Conclusions

Over the past four years dedicated crowdfunding platforms have played an influential role in over £50m worth of investment across a range of technologies in the UK.

While industry leaders and platform representatives feel we have seen a peak in the UK, especially with the end of the RO, some UK companies are now turning to generalist platforms to finance their projects. As Verto Homes did, securing more than £1.3m on Crowdcube in October 2016.

The fate of the UK crowdfunding market is unknown. However, the global market is continuing to grow. Helped by increased knowledge of alternative technologies including battery storage, energy from waste and energy saving measures.

If you are considering your funding options or have a waste related project and would like impartial advice, please do not hesitate to contact our senior consultant Matthew Cawley at matthew.cawley@alpha-financials.com.