Growing Solar Market Ushers Venture Capital Investment
Solar Finance Pioneer CleanCapital Closes 3.7M Investment Round
Clean energy finance has been limited to big banks, private equity firms, and tax equity investors. The industry has long been in need of financing for small scale projects, that are too small to attract large investors. One of the solutions is bundled investment funds that combine several successful projects (often called a warehouse), which spreads the risk, giving such projects access to finance from a market driven fund. One among the pioneer fund developers in the solar space is CleanCapital. It acts as the investment platform that identifies, screens, and manages clean energy projects for its investors, giving clients informed and well-evaluated access to the clean energy investment market. To date, CleanCapital has financed over $50M of solar projects and more than 20 MW in operating solar assets.
Growth in Solar
The solar market has seen an unprecedented surge in the past few years, particularly since 2010. The statistics are staggering. According to the US Solar Market Insight, solar market nearly doubled its annual production in 2016, at a record 14,626 megawatts - a 95% increase over 7,493 megawatts installed in 2015. See graphic below.
Notwithstanding the growth, we are still at the early stages of adoption of renewable energy. According to EIA (Energy Information Administration), of the total energy generated in 2016, share of renewables is14.9%; of which only 0.9% is contributed by solar installations. The statistics are similar for actual number of installations (residential) too. According to Google's Project Sunroof, 79% of all US rooftops are solar viable, meaning they have enough unshaded area for solar panels. With approximately 135 million residential units in the country, it is technically possible for more than 100 million homes to have solar on them. In 2016, only 1.3 million homes (just over 1% of the potential) have solar installations or solar power.
The rising popularity of solar use can be attributed to lower costs of installation and operation. However, financing continues to be a challenge to solar deployment, because of the inherent capital-intensive nature of this technology - the costs of solar systems are paid up front, while their benefits are realized gradually over years. Till date in most countries, including the US, solar financing has been shaped by government tax credits and other regulatory incentives. With the current Investment Tax Credits winding up in 2021, financing of solar projects is poised to become more crucial than ever.
Financing Clean energy Projects
CleanCapital, as part of its capital raising campaign, recently announced that the closing of its Series A funding with a total investment of $3.7 million. This particular investment came through 50 investors including investors from SeedInvest’s Selections Fund - a leading equity crowdfunding platform.
"CleanCapital is committed to attracting more investors to the space by creating a new marketplace for clean energy, one that is driven by transparency, efficiency and accessibility", said Thomas Byrne, Co-founder and CEO of CleanCapital.
SeedInvest's interest in CleanCapital comes as no surprise. In the recent years, solar financing has been one of the preferred industries for many a crowd funding platforms. SeedInvest has funded over 160 startups and boasts a rapidly growing network of over 200,000 investors. SeedInvest has had over 20,000 startups apply to raise capital since inception and has accepted less than 1% of those companies to feature on the platform. CleanCapital made it to this select group.
"There is a sizeable opportunity to provide investors with access to new types of alternative investments and we were impressed with CleanCapital’s solar platform," stated Ryan Feit, SeedInvest CEO and Co-Founder.
In addition to SeedInvest, cleantech leaders including Corporate Climate Alliance, Nephila and FinTech pioneers like Prosper Marketplace, Eaglewood Capital Management and LendingClub have invested in CleanCapital. The new investment will allow CleanCapital to accelerate its technology roadmap and scale operations, growing its team with leading industry experts.
“As clean energy market grows as an asset class, mitigating risk will be a key component in attracting new investors,” said Barney Schauble, a Managing Partner at Nephila. “I believe CleanCapital can grow substantially by leveraging technology to address market inefficiencies and increasing the flow of capital throughout the clean energy marketplace.”
One of the serious issues for financing solar has been that the cost of solar projects often leave them outside the realm of financing available for IT projects. Seed capital for startups tends to fall within $10,000 and $500,000. This is a good start for a company that may have started in a dorm room with two or three friends who have one skill: programming. A solar company, in contrast, must purchase products as well as facilities to store them, hire and train employees, find and manage clients, complete what can be lengthy permitting, and help negotiate long term financing. For local installers who deal primarily with smaller industrial and residential projects, a partner who understands the technology and the market can make a great project successful.
Another problem facing solar companies is that Venture Capital is geared to invest in companies that are likely to go public (IPO) or fail within a few months. One 'big bet' offsets failures. Such capital is not interested in projects that are going to be producing stable, predictable income over long periods of time. Banks generally lack the expertise to invest in solar projects, and may chose to not loan to a great project because they feel that the cost of the project is too large for the solar owner, in spite of the fact that the project will pay for itself over time. The kind of financing that CleanCapital brings to the market helps fill the gap created by such investors.
As the solar industry looks to 'get to scale', meaning that they cross the 10% barrier and move on to generating larger percentages of the national output, such companies are an essential piece.