If someone was to ask you the most straightforward way to invest in real estate, the answer is simple: buy a house. Yes, there are many other ways to get exposure to real estate: publicly-traded real estate investment trusts (REITS); private real estate asset managers (e.g., Fundrise or Cadre); fractional ownership startups (e.g., QuantamRE); companies in the real estate adjacent space (e.g., Zillow, Redfin, and Rocket Mortgage); and companies that supply the materials for building houses (e.g., lumber companies). But those avenues are not substitutes for owning a house. You want to invest in real estate? Then buy real estate. Simple as that.
However, if someone asked you how to directly invest in clean energy, the answer today is far less straightforward. Can you own a solar farm? A wind farm? A hydropower plant? Unlikely. Relatively small commercial solar installations (sub-1MW) can cost upwards of seven figures–far too big of an investment for even many wealthy or affluent investors. Some might say “well, you can install solar panels on your roof,” but what if you don’t own your home? Others might tell you to buy stock in Tesla or a solar manufacturer. But is that the same as owning a wind farm? Of course not. Investing in those stocks is more analogous to investing in companies that build housing materials or offer related services.
So why is it that normal people lack the means to directly invest in clean energy infrastructure? Why doesn’t this asset class exist? This article explores those questions and what can be done.
The limits of residential solar
Let’s start with residential solar as an example. Yes, installing solar panels on one’s roof is as direct an investment one can make into clean energy. But unlike real estate, where single-family homes and condominiums are generally for sale at all kinds of price points (available to any buyer with the requisite cash or credit), not everyone can invest in residential solar.
After all, many people rent rather than own their own homes. That reality effectively locks out 122.8 million U.S. households from making a “do-it-yourself” investment into clean energy. There are several reasons why. Renters may be unable to convince their landlord to install solar panels on their property. Structural impediments on the buildings, like insufficient roof space, may also impede a willing landlord from installing solar. Apartment buildings and multi-family dwellings often store HVAC units, electrical systems, and other equipment on the roofs, thereby crowding out space for solar panels. Legal red tape–such as homeowner association (“HOA”) rules, restrictive covenants (“CC&Rs”), zoning laws, and local building codes–may also preclude the installation of solar panels, especially for multi-family dwellings like apartments and condominium units, which tend to be subject to HOA rules.
Even for homeowners of single-family dwellings, a number of idiosyncratic factors—like the amount of shade, the pitch and integrity of the roof, steep upfront financial costs, long payback periods, and other building code limitations—may render solar panels cost prohibitive. Making matters worse, some states have also recently cut back on the amount of net metering incentives afforded to solar homeowners. In the case of California, NEM 3.0 reduced those incentives by a jaw-dropping 75% to 80%. So even if you do own your home with a new roof, optimal pitch, and plenty of sunshine, the financial math may still not add up, depending on your consumption patterns and other circumstances.
Community clean energy aggregators
Some municipalities offer renewable energy purchasing programs, where consumers (often) pay higher electricity prices in exchange for the assurance that their electricity came from renewable sources. But those programs are not available in every city and county. Nor do they constitute an investment per se. While these programs may help increase demand for renewable energy, the end consumer does not own—and therefore does not reap the benefits from owning—the clean energy infrastructure behind it.
Locked out
Some private equity firms and infrastructure funds directly invest in large scale renewable energy projects, like large on-shore wind farms or utility-scale solar arrays. However, those private funds limit their clientele to large institutional investors, like pension funds, university endowments, wealthy families, qualified investors with more than $5 million in assets, and other "accredited" investors. Accredited investors are persons or entities allowed to invest in private offerings that are not registered with the Securities and Exchange Commission. Under Rule 501 of Regulation D of the Securities Act of 1933, a natural person must consistently earn an income greater than $200,000 (or $300,000 jointly with a spouse) or possess a net worth exceeding $1 million to qualify. That latter figure excludes the value of a person’s primary residence and any indebtedness that exceeds the fair market value of that home. So, in short, unless you find yourself in the top 10% of Americans by wealth (or you happen to be a large institution), then sorry, you're out of luck.
So what about the stock market?
The stock market provides some opportunities to invest in clean energy, but the options are limited in two key ways.
First, about 50% of the United States' clean energy capacity is "off-market." That is, it is not owned by a public company with shares that can be bought and sold on a U.S. exchange, like the NASDAQ or New York Stock Exchange (NYSE). And second, among the publicly traded U.S. companies that do own renewable energy assets, 84% of them also invest in fossil fuel power plants, like coal- and gas-fired plants. In other words, buying stock in your local investor-owned utility company virtually guarantees that you are also investing in fossil fuels, no matter how much they tout their “green” credentials. We dive deeper into that analysis below.
Off-market and out-of-bounds
Firn set out to understand just how much renewable energy in the U.S. was "off-market" and therefore out of reach for everyday, non-accredited investors.
Using U.S. Energy Information Administration data, Firn compiled a database of all renewable energy assets owners, with assets rated over 1 MW. Those assets included photovoltaic (PV) solar installations, concentrated solar power (CSP) installations, onshore wind farms, geothermal power plants, hydropower dams, and battery storage. Many of those assets were owned by single private limited liability companies (LLCs), which were then nestled in the “ownership tree” of some larger, parent company. Often, those parent companies were themselves subsidiaries of larger multinational corporations. By cross-referencing those ownership trees with databases containing details on corporate parent-subsidiary relationships, Firn painstakingly mapped the true ownership of more than half the installed renewable energy capacity in the United States–or about 253 GW of renewable energy in total. That exercise revealed who (or what) owned the nation's clean energy infrastructure and whether a normal investor could invest in it. Here's what we found:
Around 75% of U.S. hydroelectric capacity is owned by a governmental entity or other non-traded entities, like cooperatives or irrigation districts. More than 60% of geothermal and 50% of utility-scale battery storage capacity is also off-market, with much of it privately owned. While publicly listed companies do own 60% to 75% of the installed capacity for solar and wind in the U.S., about a third of those companies are foreign domiciled. Foreign domiciled companies present challenges for U.S. investors, since investing in foreign companies usually requires a bank to sponsor an American Depositary Receipt (ADR). If no ADR exists, those foreign shares carry heightened liquidity risk, making them inappropriate for all but the most sophisticated investors. And even if an ADR is available, U.S. investors must still pay the bank additional fees and foreign taxes to boot—just to own a share of American renewable energy infrastructure!
Rarely a pure play
So what about those U.S. companies that are both publicly traded and own renewable energy infrastructure? Why not just invest in them? Well, it turns out that those companies tend to be a mixed bag. Almost always, they are not as “green” as they seem.
When an investor buys shares of a company on the stock market, that investor owns shares of the entire company, not just the parts they like. For example, many investor-owned utilities own clean energy assets, like wind farms or utility-scale solar installations. But nearly all of those utility companies also own and operate dirty fossil-fuel power plants. With few exceptions, investors choosing to buy shares of U.S. energy players have little choice but to invest in the whole portfolio, taking the bitter with the sweet—or in this case, the dirty with the clean.
Mutual funds are no real answer, either
In recent years, there has been a growth of “green” or “clean technology” mutual funds and exchange-traded funds (ETFs). While the emergence of those funds is a welcome sight, they, too, can only invest in the same pool of publicly traded companies, whose limitations have already been discussed (those ETFs and mutual funds will also pass on the costs of investing in any foreign companies ADRs, too).
Firn analyzed a dozen leading “clean technology” ETFs and mutual funds and discovered that they tend to invest more in upstream companies (like wind turbine manufacturers or semiconductor companies) than downstream companies, which own the clean energy infrastructure outright. Owning these funds is analogous to owning lumber mills, concrete manufacturers, and roofing companies in lieu of owning a house. Of course, investing in companies that help build the clean energy transition—or, at least, who stand to gain from it—may play an important role in a diversified portfolio. So if one wishes to invest in the industries adjacent to clean energy infrastructure, then these funds offer a viable path to doing so. But if one wishes to own the clean energy infrastructure outright (and earn dividends directly from that clean energy), then those mutual funds, regrettably, still provide no real answer.
Why access matters
Everyday savers and retail investors are left with no way to make pure-play investments in the same clean energy assets that institutional investors, family offices, and other high-net worth individuals routinely use to diversify their portfolio. Fixing this problem matters for two reasons.
First, doing so could unleash hundreds of billions, if not trillions of dollars, towards renewable energy deployment. In 2019, Americans—rich and poor—tucked away $9.34 trillion in traditional savings accounts. By December 2022, even with pandemic stimulus relief fading into the rearview mirror, Americans had $19.8 trillion saved in checking accounts, savings deposits, and retail money market accounts. If even one-tenth of that cash could be invested into productive clean energy infrastructure through a platform like Firn, it would represent an investment five times bigger than all of the Inflation Reduction Act’s appropriations slated to go to clean energy (which, by contrast, was just under $400 billion). Just imagine: no need to worry about who wins the next election cycle or whether Joe Manchin blocks another climate bill. Anyone can just open their phone, click a button, and voila: they’ve directly funded more renewable energy.
Second, giving access to everyone addresses a fundamental equity concern. Historically, the path to long-term wealth creation in capitalist societies begins with ownership, regardless if that occurs in the form of owning land, real estate, or stock in productive businesses.
Too often, though, the story goes that the rich get richer, and the poor get poorer. America is no exception. And while America is a story of progress rather than perfection, it remains a poignant fact that people of color and recent immigrants still disproportionately qualify as poor or lower-income. It is a bitter irony, therefore, that the people who have the most to lose from climate change are also the people least able to build wealth from all of the valiant efforts trying to stop it.
Where Firn comes in
The solution to this access problem is simple in theory, but complicated in practice. We need to create a new asset class—one composed solely of clean energy infrastructure, available to everyone.
That's where Firn comes in. Firn seeks to democratize access to all kinds of clean energy investments. Leveraging recent changes in securities laws, Firn is building a platform that will allow anyone to invest in solar, wind, battery storage, electric vehicle (EV) charging stations, heat pumps, and all sorts of clean energy technology—directly. No fossil fuels, no foreign taxes, and no fake “green” credentials. We believe billions of dollars worth of capital can be unlocked to finance the clean energy transition and mitigate climate change.
The world needs to make investing in clean energy as simple as clicking a button. The stakes are massive. After all, only the fate of the world depends on it.