Rising carbon emissions is one of the greatest challenges facing our planet today, as world leaders have made apparent at the ongoing Cop27 climate summit. Related to that is the fact that energy security is also a pressing concern. And there are several complex factors that affect energy security. Access is, of course, an important one, but there are many others that have a notable effect – namely, geopolitics, security of trade flows and lack of diversity of energy sources. Replacing the fossil-fuel infrastructure is no easy feat; nor can we expect a smooth transition to a more diversified mix - focused on renewables, overnight. This would require consistent support from several stakeholders across the public and private sectors and is also reliant on significant investment.
Despite increased efforts by governments around the world, energy-related carbon emissions rose by 6 per cent last year to 36.3bn tonnes – their highest-ever level, according to analysis by the International Energy Association. This has triggered a global re-evaluation of energy creation and delivery, in addition to a reassessment of the most effective ways to finance such projects given the reduction in credit opportunities as a result of the financial downturn.
The Covid-19 outbreak, moreover, highlighted the extent to which fates are intertwined; local and regional problems often have global effects. And this is where the power of investors – not just banks or the ultra-wealthy, but ordinary, retail investors – becomes very evident.
Previously seen as a last resort for entrepreneurs trying to raise capital, crowdinvesting – a form of crowdfunding regulated in many countries, in which those giving money have a clearly defined stake in the profits – has now emerged as a viable and important alternative financing source following destabilisation in parts of the global financial sector in the aftermath of the pandemic. At the same time, we have also witnessed a paradigm shift towards cleaner and more accessible energy generation.
The global crowdfunding market is estimated to reach $43.5 billion by 2028, up from $17.4bn in 2021. And around $136 million was raised through crowdfunding between 2015 and 2020 for companies and projects that deal with energy access.
When it comes to crowdinvesting, inclusion and equality are among its core tenets. Anyone who believes in the potential of a technology, or a cause, can support it – and in doing so can make a meaningful contribution to vital fields, such as clean energy. It is also a powerful communication tool which allows full transparency and open communication around project financing and delivery, reinforcing its potential as a source of empowerment. In the energy sector, investors and users become one and the same – shifting from a top-down model to a decentralised one that better serves the interests of citizens, communities and local businesses alike.
While there are clear advantages to the crowdinvesting of clean energy projects, there are also challenges - one being the inherent difficulties of the mechanism itself, namely that the project owners must convince a wide range of people about its clear benefits.
But there are many types of energy projects that could benefit from this model; small-to-mid-sized community projects that focus on new-build power generation sites, such as solar photovoltaic PV parks, are a worthy example. A recent successful case study that shows the power of crowdinvesting is Olam Cocoa – a leading originator of cocoa beans in Ghana. Through "ecoligo", an impact investment provider and leader in revolutionising the energy landscape in emerging markets, the firm was able to generate $400,000 in just 25 hours. The funds will be used to develop a 1.5 megawatt peak solar plant that will support in the cultivation of cocoa beans.
Another critical aspect of crowdinvesting is that it is important that success is shared. The European Commission, for example, has long identified the potential of crowdfunding to support the growth of SMEs, naming it as an important financing tool in a 2015 paper. One of the clear benefits is that it can reduce the administrative burden placed on SMEs. While crowdinvesting allows individuals and communities alike to play a greater role in ensuring their own futures, this would not be possible without the involvement of dedicated partners, whose ultimate objective goes far beyond developing infrastructure and generating energy; but rather, extends to meaningful development in the communities in which they operate.
Fotowatio Renewable Ventures, part of Abdul Latif Jameel Energy, is one such example. FRV is dedicated to identifying and investing in operators that have built software products that can enhance the way that renewable generation and storage assets perform. As a form of alternative financing, crowdinvesting also promotes innovation, research and development at a grassroots level, supporting businesses and ideas that would ordinarily struggle to raise funding from traditional financial market sources. This can have a profound effect on societal and economic development.
Ultimately, crowdinvesting is a relatively new financing mechanism that places the responsibility of driving the energy transition with local communities. This empowers individuals and communities alike to play an active role in ensuring a sustainable future for generations to come. The channel has the potential to be a key driver of inclusion and innovation in the field of clean energy, and these values are at the very heart of the world’s energy transition. It is apt that the means of financing such projects should also reflect the world that we are trying to create through clean energy projects.