Solar Mosaic: The Kickstarter of community solar
Solar Mosaic enables crowdfunded loans for residential solar projects. It is an innovative platform that connects borrowers who want to install photovoltaic panels on their roof with investors who are willing to provide capital as lenders.
https://www.youtube.com/watch?v=kJaI79r9L5M
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Business Model
Community Solar
According to Solar Mosaic, around a quarter of the roof area in the U.S. is suitable for photovoltaic arrays. However, property owners oftentimes do not have a sufficiently high credit rating to be able to borrow capital from a bank and finance their investment in solar energy. Mosaic comes in as the company that will “democratize investments in photovoltaics”, allowing people who do not have access to suitable roofs to invest in such projects [1] [2]. The value-added is that Mosaic able to provide both lower-cost of capital and more favorable terms than commercial lenders. At the moment only “accredited investors” as well as NY and CA residents are able to invest, though regulations are expected to change with the JOBS act, enabling a wider range of people to participate [4]. The key stakeholders are the investors, homeowners, installers, and maintenance companies.
Crowdfunding Basics
The way Solar Mosaic captures value is the following: Investors do not put their capital directly into a project; rather, they invest in Mosaic, which distributes that money as loans through Special Purpose Entities to the real-estate owners. Once the projects are operational, the investors receive a guaranteed 4.5% to 7% annual return [for comp. 10-year Treasuries yield only 1.9%] [2]. Mosaic charges 2-3% of the loan as origination fee plus a 1% yearly fee [3]. The loan duration is from 5 to 10 years. The minimum investment is only $25 and project sizes range from 50kW (small rooftop) to 1MW (large on-ground installations) [5]. Cash is generated either through repayment of the loan by the building owners or through the sale of Renewable Energy Certificates to local utilities. It adds value in that it also provides a maintenance contract for the full duration for both the panels and all equipment. Hence, Mosaic is technically speaking not a solar developer but a finance company and does not need to work directly with utilities regarding pricing, incentives for solar, or net metering [7].
Value-driven Investing
Mosaic ensures that there is alignment between users and investors and therefore chooses non-profit community-based organizations as the beneficiaries of the solar loans. The organizations receiving the installations include government agencies, community housing projects, military bases, and companies, and since 2014 also homeowners [2] [4]. Moreover, homeowners are offered no downpayment and a 20-year loan term. The commercial organizations and individuals will benefit from the savings created from switching to solar – mainly because electricity prices are projected to increase steadily for the next 20 years.
Operating Model
Legal Structure
The loan origination happens via an SPE, or a Special Purpose Entity, to which Mosaic transfers the capital to and which formally owns the installation. Legally, Mosaic is registered as a Benefit Corporation, meaning it is a for-profit entity, creating value for society or the environment [1]. Unfortunately, this does not result in any tax benefits, but allows for the company to have certain 
degrees of freedom. For example, a Benefit Corporation would not be financially liable to its shareholders if it decides to accept a lower purchase offer by choosing a socially responsible investor [1].
Technology
The user interface is key to the success of Solar Mosaic. The team was able to create a highly efficient UX for both investors and homeowners, which lets users explore existing investment opportunities or as get an instant quote for owners. Mosaic has been able to create a trustworthy web platform, which runs smoothly and visually represents the business model, all cash flows and fees.
Team Structure and Culture
Founded in 2010, it is based in Oakland, CA. Mosaic stands in the space between a tech startup and a value-adding energy business. It is driven by the strong mission to empower people to benefit from clean energy both as users and investors. Behind the office doors Mosaic looks like a typical tech startup – beanbags, a ping-pong table, and foosball. The focus is on creative solutions and the team backgrounds are more than diverse – from tech savvy developers, to photovoltaics PhDs, financiers, to community managers. With less than 30 people on the team, the company is staying agile and expanding at a steady pace [6].
To date, Mosaic has crowdfunded more than $8 million in solar loans. The synergies between the operating and business model allow Mosaic to be a first-mover in the cleantech crowdfunding space, allowing the company to develop key partnerships and secure the funds for the sustained growth of community solar projects.
References
[1] “Benefit Corporation”. Benefitcorp.net. 12/3/15. <http://benefitcorp.net/state-by-state-status>.
[2] “Solar Mosaic: One Tile at a Time “. Pv-magazine.com. 12/3/15. <http://www.pv-magazine.com/news/details/beitrag/solar-mosaic–one-tile-at-a-time_100007948/#axzz3ts6ZkugZ>.
[3] “Community Owned Solar Creates a New Business Model in MA”. Greentechmedia.com. 12/3/15. <http://www.greentechmedia.com/articles/read/How-Virtual-Net-Energy-Metering-Attracts-Money-to-Solar-in-Massachusetts> .
[4] “Innovative Business Models and Financing”. Iea-pvps.org. 12/3/15. < iea-pvps.org/index.php?id=311&eID=dam_frontend_push>.
[5] “Interview with Billy Parish, Founder and President of Mosaic”. Forbes.com 12/3/15.
<http://www.forbes.com/sites/devinthorpe/2013/09/04/mosaic-uses-crowdfunding-to-finance-solar-projects-learn-how-to-participate/>.
[6] “Join Mosaic”. Joinmosaic.com. 12/3/15. < https://joinmosaic.com/solar-financing>.
[7]. “Crowdfunding Projects with Mosaic”. Nanalyze.com. 12/3/15. < http://www.nanalyze.com/2014/01/crowdfunding-solar-projects-with-mosaic/>.
Thanks for sharing the story of this platform to provide financing for such a capital intensive project! The low investment minimum of $25 and no downpayment by homeowners are interesting policies. It provides low barriers for the 2 sided market and I wonder how effective this has been in broadening the base of different investors and consumers and on the flip side, how does Solar Mosaic manage risk of default?
Hi, Marlene.
Thank you for the comment. You’re making a great point — while it is very easy to finance solar loans (min. investment of only $25), there are certain conditions, which ensure that the investment is safe and that the loan will be repaid. First, only “accredited investors” can provide capital for the loans. To be considered accredited means that you need to document either $200,000 annual income or $500,000 in assets. Second, the collateral for the loan is the equipment itself. If the owner is not able to repay the loan, the equipment is sold at market prices and lenders are still repaid their investments. Third, equipment providers offer a 25-year warranty for the panels and inverters. Fourth, the project is normally backed up by insurance for catastrophic events (fires, storms). So all in all, there is some risk in the investment but it is very low and Mosaic is doing the best they can to mitigate it.
Great post and choice of company!
The innovation in solar business models have been an incredibly interesting concept from various long-lease options, pay-as-you-go (PAYGO) solar is emerging markets, and now crowdfunding/sourcing options from companies like Solar Mosaic and SunFunder.
Pundits are now on the verge of believing that solar will be bankable (although the events in the last few months may say different) but if that is the case how do you feel this may affect Mosaic and its ability to compete? It is also interesting to what type of investors Solar Mosaic attracts, and how they compete with investors looking at YieldCo’s that have a high-paying dividend in solar.
All in all I agree that Solar Mosaic has a very interesting business/operating model and I look forward to how this industry plays out.
Super interesting post Lidiya!! Do you know what the default rates re like on these investments? I’ve heard that with other types of crowdfunded financing models (and even with development-oriented microfinance in emerging markets) that default rates are actually extremely low because borrowers feel a moral obligation to repay loans back to the “community” that offered them credit when traditional banking wouldn’t, even in cases where the projects don’t go as planned.
Hey Lidiya,
This is indeed a very interesting company!
I worked on a market research back in France about another type of innovative financing model for solar power. Instead of offering a loan to customers to instal a PV equipment, the company rents the available roof area from customers and uses it to install a solar equipment and then sells the electricity generated back to the utility. Therefore, customers have a fixed revenue stream, and the company manages all the operations, enabling economies of scale.
My findings were that this was better suited for large roof areas, so mainly for big warehouses, and that household’s roof area was too small for this model to be profitable, at least in France. Moreover, as it is the case for Solar Mosaic, the price of electricity as well as current favorable regulation (such as tax rebates) are crucial factors for the success of these business models.