The Inflation Reduction Act contains almost $400 billion in funding for clean energy initiatives. There’s $250 billion for energy projects. $23 billion for transportation and EVs. $46 billion for environment. $21 billion for agriculture, and so on. With so much cash flowing into the sector, the possibilities for investment and growth are gigantic.
These investment opportunities, however, have typically been inaccessible for everyday retail investors until much later in a company’s development–after an IPO, usually. Meaning that the best returns are likely to be captured by banks and other institutions who have the capital and financing to invest large sums of money earlier in the process.
That’s where Pasadena-based Energy Shares comes in. The company wants to help democratize access to these investment opportunities and simultaneously give early-stage utility-scale energy projects another revenue stream.
The concept of equity crowdfunding–even in the green energy economy–isn’t completely novel.
Back in 2016, the United States saw its first “equity crowdfunding” platforms hit the market after the Obama administration greenlit the investment strategy in the JOBS Act by allowing companies to sell securities online. Since then platforms like WeFunder and StartEngine have come online as a way to offer everyday people exposure to asset classes that have typically been restricted to institutional investors.
The JOBS Act originally allowed early-stage companies to sell up to $1 million dollars in securities through crowdfunding. But buoyed by the program's early success, legislators increased the amount to $5 million in May 2021.
Five million dollars is a lot of money to most Americans, but it doesn’t go very far when setting up a utility-scale solar or wind farm. With costs averaging around $1 million dollars per megawatt, large scale solar farms can easily run into the hundreds of millions of dollars.
Which is why Energy Shares is focused on providing the funding for everything that needs to happen before construction starts. Like StartEngine or other similar equity crowdfunding platforms, Energy Shares collects a fee from the project developers in exchange for access to their platform.
“[Companies] need capital to be able to cover all the fees associated with all the filings: Getting the land rights; getting the government permits; there's a number of environmental studies you have to do,” says Mark Kapczynski, Energy Shares Chief Marketing Officer. “So you have to study all of that stuff to even see if a project is viable. All of that obviously costs money, and the developers need those resources to be able to ultimately build these projects out.”
Kapczynski says the exact fee structure is still being worked out–the company is still in its pre-launch phase–but similar equity crowdfunding platforms typically charge a 3.5-5% transaction fee. Investors do not have to pay to use the platform and Kapczynski says that investor money never goes to Energy Shares. If a company fails to raise its target amount, the money is simply returned to the investors.
Energy Shares’ success may ultimately boil down to whether they can convince investors that their climate-specific platform offers enough advantages, says Douglas Cumming, a professor of finance and entrepreneurship who studies crowd equity funding at Florida Atlantic University. Otherwise, its’ more likely those companies will opt to go with a more established generalist platform like StartEngine.
In addition to providing access to investors, Energy Shares also leverages its parent company, Solariant, to offer expertise and strategic guidance to companies as they attempt to get their projects permitted and approved. Solariant has been investing in solar projects across the United States since 2012 and has developed 2.5GWh of utility-scale solar energy and storage storage systems.
The good news for Energy Shares according to Cummings, isthat the crowd equity model, as a whole, has been thriving in recent years. Since the JOBS Act passed, roughly 5,000 companies have turned to crowd equity funding, and Cumming’s research shows that about 63% of those raises have raised their target funding. He also highlights research showing that crowd-funded companies are also less likely to be fraudulent than their traditional counterparts–a fact that he says may be attributable to the “wisdom of the crowd.”
“You have thousands and thousands of people looking at these things,” says Cumming. “[Investors] can look at the characteristics of the campaign. Is it reasonable, what they're offering? Is there some sort of feasibility of it working out? The crowd seems to be pretty good at evaluating the quality of projects.”
As mentioned, Energy Shares is still in a “pre-launch” phase, meaning only a limited number of investors can access it, but the company is conducting a pilot project in the form of a 75-megawatt solar farm called “New River” in Florida. If all goes well, and the platform runs smoothly, Energy Shares will look to add listings and finance more and more megawatts as the country continues its transition to renewables, though Kapczynski is reluctant to give specifics on how big or how quickly the company wants to grow. “Sixty percent of electricity in America is still produced by fossil fuels, so we hope to have an impact and make a change there,” says Kapczynski. “Because ultimately with people buying EVs, having clean electricity produced behind the scenes, that's truly how we can make a positive impact on on climate change and ultimately help our planet as well.”
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