Bring direct solar investment opportunities to the average investor

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In October last year, the International Energy Agency warned the world that it must triple investment in clean energy by 2030 if global warming is to be contained. Much of this new investment will be needed abroad, and especially in developing countries, but the United States must step up its investment commitments and take the lead. In order to achieve our national goals, more capital must be mobilized to finance a growing asset base of sustainable resources.

The growth of the US solar industry helps illustrate the critical importance that capital can play. Today, third-party financing supports up to 83% of all roofing projects.

Warning : Fortunately, a growing number of investors are flocking to invest their money in environmentally friendly vehicles, $ 35 trillion to be precise. Unfortunately, a less desirable trend has also recently emerged in the area of ​​sustainable investing. Many ESG funds are not what they claim to be, and they do not help create the real, lasting change investors want.

The matter is of sufficient concern that the Securities Exchange Commission (SEC) is aware of it. In March 2021, the SEC launched a task force on climate and ESG issues, and in August, it launched an investigation into specific ESG practices of Deutsche Bank.

An emerging alternative to raising capital: So, how to redirect this investor interest and mobilize the necessary capital to achieve a real environmental impact? And how do you make sure investors know exactly what they’re investing in? A new fintech platform, Finite, has redesigned sustainable investing to allow investor capital to seamlessly participate in clean energy investments.

Finite recently unveiled its first SEC-approved fund that allows any investor with $ 500 in available capital to participate directly in financing distributed solar and storage assets. Importantly, the new fund is accessible to accredited and non-accredited investors from brokerage and retirement accounts. This SEC green light means that, for the first time, the average investor can participate in the financing of the renewable energy revolution.

Many investors and developers in the industry have hoped for a simplified process for years. Previously, Solar Mosaic’s peer-to-peer funding platform was the closest solution. Solar Mosaic originally allowed accredited investors (those with net worth over $ 1 million or earning more than $ 200,000 per year) to crowdfund and invest in a number of commercial solar projects (i wrote about Mosaic for Forbes.com in early 2013). However, Mosaic quickly took another direction, relying on the institutions and the securitization market for capital, so that the solar finance space became the exclusive domain of large institutional investors.

Finite offers a solution that brings these sustainable, impactful and profitable investments back to the growing number of interested investors while creating an easily accessible lending platform for solar installers. Finite’s inaugural SOLRX fund will invest in loans to homeowners and businesses that install on-site solar and energy storage systems, as well as community solar projects.

The first such fund approved by the SEC: To learn more about this new vehicle, I hosted a chat with the two directors of Finite, Founder and Chairman Kevin Conroy, and Portfolio Manager David Kretschmer. With a banking background at JP Morgan and Dividend Solar – an originator of residential solar loans – Conroy was the initial driving force behind the concept. He was intimately familiar with the returns that the distributed solar industry could deliver, as well as the complexity involved in the capital investment process. Kretschmer – who most recently managed $ 30 billion in insurance capital as chief investment officer at insurance giant Anthem – has brought in-depth institutional expertise in the fixed income arena.

Conroy explained that this was the first such fund approved by the SEC. It will be dedicated to solar energy, and it plans to allocate the capital of the fund to projects in the residential, commercial and industrial sectors. It should be noted, he said, that all investors will be treated the same whether they choose to invest $ 500 or $ 5,000,000.

The goal of Finite’s effort – now over two years in the making – is to generate real impact alongside respectable returns. Echoing the SEC’s concerns about exchange-traded funds (ETFs) ESG, Conroy noted, “We don’t think this is a very good product. They generate little or no impact and are generally only marketing tools. In fact, Morgan Stanley recently noted that of the 1,000 ESG ETF launches in Q2 2021, 850 were retrospectively labeled ESG. ”

He also observed that the continued growth of the distributed solar industry largely depends on the ability to reduce ancillary costs and finance reasonably priced projects. The Finite fund is intended to solve a critical problem that many small developers face: the overwhelming need for significant working capital. Today, many installers struggle to access cash on the day they actually need to purchase equipment, creating heavy working capital requirements and hurting the economics of many projects. . This lack of capital limits the number of projects developers can install at any given time and their overall growth potential.

“What we have been able to do,” explained Conroy, “is to simplify the whole process, both for investors and builders, allowing more deals to be closed and more capital to flow into the market. the asset class ”.

A solution for the lender and the borrower: Conroy explained that there are basically two sides to the coin: the lender / investor and the borrower. Let’s start with the investor who wants to finance a basket of solar projects. The investor logs into the Finite platform, which is supported by the partner bank US Bank and clicks “invest now”. With the entry of account-related data, similar to that required to open any type of financial account, the participant can fund their account and buy SOLRX shares. The investor can choose to buy the shares of a brokerage house or a retirement account. Conroy explained that the goal was to create a process that would only take a few minutes, commenting, “We have created something that encompasses regulation of the financial sector while using technology to enhance the experience.” Kretschmer noted that investors can buy shares daily and repurchase them on a quarterly basis, although there are rules as to how much can be repurchased at one time. This compares favorably to private equity, where capital is typically tied up for long periods of time.

On the other side of the equation is the borrower, who wants to access capital with minimal delay or fuss and be able to move quickly to the next project. Kretschmer noted: “Finite is the easiest capital provider for builders. With assets costing around $ 30,000… We have built technology to allow us to buy loans on a daily basis and eliminate the burden of working capital.

Kretschmer admitted he was skeptical when he was first approached about the concept, especially with the expected rate of return versus the underlying risk. “I have managed fixed income portfolios for years. I didn’t really believe in the risk-return trade-off. A rate of return of more than 5% is usually associated with a junk bond. I felt comfortable on the return side but then had to educate myself on the risk side. I said ‘wait a minute, there’s an opportunity here. An opportunity to make sustainable investments the right way and get a higher return. ‘”

For his part, Conroy commented, “It would have been much easier and more profitable with a traditional private fund. But we’re at an inflection point where we needed something bigger that could fund the assets that need to be funded and that includes the people who want to participate. “

Raise capital from day one: Last year, Finite closed an oversubscribed round of funding from Powerhouse Ventures and a group of industry veterans, which allowed the company to develop the technology and launch the first fund.

Now that it has been launched, Finite’s Solar Fund has millions of dollars to lend. The company plans to grow the fund through individual investors, investment advisers, high net worth individuals and family offices. So far, the company has found a warm response from the industry as it helps participants grow their business by providing an alternative source of funding.

The platform is also designed to evolve, both for SOLRX and for other sustainable funds in the future. If a potential investment can be beneficial for the environment, Finite wants to allow investors to finance it.

Driving real change: What would success look like for the Finite team? In the short term, Conroy said, a positive result would mean the fund is alive with $ 100 million invested and generating the expected returns. “For many investors, Finite will be the first time they have access to this level of impact and we want to make sure it’s the best experience possible. Over the long term, we want to be the trusted financier of sustainability in the United States and internationally. “

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