Crowdfunding has emerged over the course of the current decade as a viable way to fund small scale renewable energy projects that are outside the scope of the traditional investment institutions or banks.
But as a new form of financing there are challenges and issues that need to be addressed so it can achieve its full potential, particularly in a region such as Europe where there are differences from country to country and for example, restrictions on cross-border activities.
With this background, the CrowdFundRES project was formed in 2015 with support from the European Commission’s Horizon 2020 programme to advance the concept in the region with guidelines and an improved regulatory and market framework.
Participants include project developers, crowdfunding platforms, academic and legal experts and the industry body the European Crowdfunding Network.
Crowdfunding in Europe
An investigation by CrowdFundRES has found that while all European member states have crowdfunding platforms, 17 of the 28 have platforms which present renewables projects – and of these nine have platforms focussed exclusively on renewables.
These countries are Austria, Finland, France, Germany, Italy, Netherlands, Portugal, Spain and UK.
Early on CrowdFundRES identified a lack of coherent regulatory frameworks for crowdfunding on both the European level as well as in individual national contexts as a major stumbling block. While 10 of the member states have implemented a specific crowdfunding regulation, most apply regular financial services regulation albeit crowdfunding often does not fit properly into these regimes.
As a result, prospectus requirements vary significantly for example, ranging from €100,000 in Greece to €5m in the UK and Italy.
In addition, the scope of exception is also very diverse. For example, in Italy it is applicable only to particular equity investments while in France and Belgium it applies only to specific equity and lending instruments.
What crowdfunders want
As part of its investigation CrowdFundRES undertook three surveys on public perceptions of crowdfunding.
The number one factor in making an investment decision was found to be transparency, cited by 79%, followed by the expected rate of return, the sustainability impact and the investment model (all over 60%)
Notably the technology type, developer reputation and geographic location of the project were all rated lower.
Recommendations for crowdfunding
In looking to make recommendations CrowdFundRES has drawn on a range of input including the stakeholder surveys, case studies and regulatory and market reviews. The approach is based on the Energy Union and the Capital Markets Union (CMU) envisioning a future with a more decentralised character and diversified sources for energy consumers/producers and investors making use of innovative technologies.
The recommendations are divided into those for renewable energies in general and those for crowdfunding in particular.
On the renewables side, they include ensuring a stable and predictable regulatory framework for investors in renewables projects, stimulating citizens’ engagement in renewables projects and incentivising renewables projects’ financing through crowdfunding. In addition, there should be guidance on the design of renewables support schemes at the EU level.
On the crowdfunding side, there is a need for a clear legal definition of crowdfunding models and market actors and to address cross-border investments, harmonisation across member states and ceilings and thresholds. Sharing best practices among member states would be beneficial and guiding principles are required in incentive schemes for citizen financial participation.
According to the CrowdFundRES report, that the renewable energy sector is willing to see the development of crowdfunding as a financing option serves as an important step towards more citizen’s participation and consequently a better local acceptance.
During the discussions, it became clear that private capital is essential for the growth of the renewable energies sector. Hence, crowdfunding can serve as a viable alternative for financing renewables projects, if energy communities at a local level as well as municipalities are sufficiently involved.
With regards to the aspect of incentivising renewables project developers to boost the use of crowdfunding, consensus was found that municipalities are key for promoting crowdfunding and providing reliability to a project on a local level. This in turn could contribute to an increase of citizen’s participation, as long as the community is brought together with project developers through a local authority.