|Michigan’s new crowdfunding law allows residents to form and create companies similar to Mosaic Solar, which turns small-scale investments into profitable roof-top solar projects. (Graphic: Mosaic Solar)|
Want to invest in a hot technology, earn a decent rate of return, create Michigan jobs, and battle climate change—all at the same time?
Thanks to an innovative state law, the MILE (Michigan Invests Locally Exemption) Act, which allows “crowdfunded” investments by state residents in new or existing businesses, Michiganders could soon do exactly that by crowd-investing in clean energy projects, particularly solar power systems, located at certain kinds of businesses and institutions.
Tom Stanton, formerly the Michigan Public Service Commission’s renewable energy section manager, is a strong proponent of pointing Michigan’s new crowdfunding law at citizen- and business-scale energy efficiency and renewable energy projects.
“This is a fabulous opportunity,” said Stanton, who now researches, among other things, the economic and regulatory energy reforms needed to make Michigan a leader in the global, clean energy marketplace. He likes MILE, passed by the state Legislature last year, because it allows non-accredited Michigan investors to send money—up to $10,000 per investor per project—to local startups or established businesses in exchange for either predetermined or profit-based returns.
Non-investment-certified companies or startups are allowed to raise up to $1 million per year that way.
“This returns us to the original idea behind stocks and bonds: ‘I’m giving you this money to do a very specific thing that I can actually see, with the expectation that it will make money,’” Stanton said. “Right now, with investments in multi-national corporations and mutual funds, most investors are flying blind.”
Stanton believes crowdfunding could give distributed solar development in Michigan a needed kick in the pants. Unlike many other states, Michigan has few state policies or utility incentives, beyond a few expiring utility pilot programs, that directly encourage strong solar development at any scale, from modest home rooftop systems, to larger arrays powering businesses or institutions, to utility-scale solar farms.
So the going’s been tough for solar in Michigan, but perhaps for not much longer.
“Michigan’s crowd-investing law may be the very best in the country right now, so that gives us some really special opportunities to set up investments in clean energy here,” Stanton said.
“We absolutely know this can work,” he added, offering the galloping success of ‘third party’ solar companies like SolarCity as a prime example. The firm installs modestly sized systems on homes and businesses without any upfront investment from building owners, and turns a profit by collecting power payments that would otherwise go to the utility—and charges a permanently guaranteed rate that’s lower than the customer’s utility charges.
“It is already a multi-million dollar business for them,” he observed. Crowdfunded projects could accomplish much the same thing in Michigan, allowing small investors, not just monopolies, to profit from the solar boom.
But there’s a catch that narrows this sunny opportunity down to buildings housing seven-day operations: Michigan’s “net metering” law.
A Net Metering Workaround
Net metering, part of Michigan’s 2008 legislative energy reforms, requires utilities to hook up to a customer’s solar installation so that, when it generates more power than the building uses, the extra power essentially runs the customer’s meter backward, crediting the account at the retail price of power. Solarized customers are not allowed to earn back more than they would typically pay annually for electricity, but in theory they can cancel out everything on their bill, except monthly, flat “customer charges.”
That’s nice for homeowners, and it would be great for businesses, too—particularly those that use lots of electricity, like machine shops, large restaurants, big box stores or office buildings.
But power-hungry customers can’t do that in Michigan. The net metering law restricts earning full retail credit rate to systems no larger than 20 kilowatts, which is very large for a typical home or small business, but nowhere near what big buildings use. Larger systems still earn credit, but only at far lower, usually wholesale rates.
That means much slower paybacks and lower returns on investment.
But what if a business used every last electron that its panels produced, including on weekends? That can happen, Stanton said, with enterprises that operate seven days a week and install systems sized to barely cover their usual daytime needs.
“If we put panels at a hospital or a retail operation that can use all the energy the panels make every single day, and put them between the utility meter and the building, then even without net metering, they are always saving on electricity costs at the retail rate,” he explained.
Other seven-day-a-week places that could use this non-net-metered arrangement—and thus would be good targets for crowdfunded solar projects—include dairy farms, senior homes, police stations, prisons, exercise clubs, and chain restaurants.
So, with the right-sized solar system on the right kinds of buildings, the crowdfunding investors would turn a modest, dependable profit on the panels, which are usually guaranteed for 20 or more years. The building owner, without any upfront investment, would immediately see lower utility bills.
Even better, Stanton points out, would be combining higher-cost solar with deep energy efficiency retrofits that pay for themselves relatively quickly and produce higher rates of return through avoided utility bills.
"This is already a multi-billion dollar per year opportunity for the biggest energy users," Stanton said, referring to the rapid rise of energy service companies that specialize in saving energy and energy costs for very large buildings. "The Michigan MILE act can help bring those same opportunities to thousands of smaller customers and small investors.
Stanton pointed out that many Fortune 500 companies want on-site solar power. The good thing about the “behind the meter” model is that it happens without the need for any special utility cooperation.
In fact, he added, the idea is part of a much larger discussion going on all over the country.
“Some utilities are scared to death of the idea and are trying to erect barriers, while another group is asking, ‘How do we change our business model to take advantage of this?’” he said.
Until they do, however, Stanton said, the distributed solar playing field is ripe for smart, crowdfunded clean energy projects.
Lawmakers, New Co-ops Could Help
Michigan’s big utilities are among those resisting the spread of smaller scale, distributed or rooftop solar systems. But efforts to overcome that resistance could surface soon in the state Legislature, and that could help crowdfunded solar.
Last year, a bipartisan group of House members introduced the Energy Freedom Package, which, among other things, would lift size and payment restrictions on net-metered renewable energy. The package did not advance, nor did other, similar ideas suggested near the end of 2014.
But a bipartisan group of lawmakers remains interested in encouraging customer-owned or –located renewables. After Gov. Rick Snyder gives his highly anticipated speech on his vision for Michigan’s energy future next month, some pieces of the original package could resurface. Success would open the field for crowdfunded solar projects for all sorts of buildings, not just large, seven-day operations.
Meanwhile, Kate Redman, an attorney at Olsen, Bzdok & Howard, in Traverse City, has been analyzing how crowdfunding can work with “solar cooperatives” dedicated to helping people install solar systems.
“My personal goal is to figure out a model that can work to get more solar out there on residences and businesses, and make it more affordable and accessible,” she explained. “There is a big ‘soft cost’ of figuring things out, especially the legal, financial, and other contractual details. We need a good model, financing documents and contract templates, so others can duplicate in other places the kinds of projects we come up with here.”
Redman believes crowdfunding can work for single, individual projects, and likely can also mesh with the co-op model. A co-op is typically a member-owned and -run food, housing, or electric supply business., but she envisions solar co-ops, likely crowdfunded, that use their combined membership, buying power, and expertise to execute solar projects in many settings.
“Can we figure out a way to make it work with current laws and utility projects?” she said. “It’s possible. But a more favorable legislative climate would really help. That’s why I encourage people to ask their legislators to support proposals like the Energy Freedom bills.
“The economic climate is becoming more and more favorable with solar costs going down,” she added. “I’m optimistic we will get somewhere. There are a lot of good people interested and working on it.”
Stanton is optimistic, too, even though he’s acutely aware of the state policy and utility regulatory barriers to building more non-utility, distributed solar in Michigan.
“I find this extremely interesting, I guess because that’s just the business I’m in: understanding the utility regulatory climate,” he said. “The public is probably not really interested in that part of it, but they clearly would love to see more clean energy, and will do what they can to support it. And if they can make a few percent on it, they’d love to invest in it, too.”
Please note: Michigan residents interested in crowdfunding a solar project are welcome to provide their contact information to the author, Jim Dulzo. Mr. Dulzo is the Michigan Land Use Institute’s senior energy policy specialist. Reach him at firstname.lastname@example.org.
Michigan residents interested in crowdfunding a solar project are welcome to provide their contact information to the author, Jim Dulzo, at email@example.com.