Climatize: An Innovative Crowd-Financing Platform for Community Solar Assets

The transcription of the video is below. 

Climatize’s Origin Story & Background

Kerim: Hi everyone, this is Kerim, Kerim Baran with SolarAcademy. I am here today, with Will Wiseman, of Climatize. Hi, Will. Good to have you.

Will: Hey, Kerim. Pleasure to be here. Thanks for having me.

Kerim: Yes. So just for everybody’s benefit, Will and I met about, I would say that was close to the end of last year, I believe, so about, 9 months ago or so, 9-10 months ago. I have since then become a small angel investor in Climatize. For disclosure purposes, let’s make that clear upfront, because I really liked what Climatize is doing. 

So, Will, for the audience, can you please tell us a little bit about Climatize, how it came to exist? What were the initial sparks that made you start it? What’s the story behind it?

Will: Sure. Yeah. So Climatize is an easy and transparent platform for you to invest in renewable energy projects, with as little as $5. And we are a regulation crowdfunding portal that enables anyone, everyone from retail investors, all the way through qualified institutions, to come and actually invest and earn a competitive return, by supporting renewable energy projects in your community and across the country. 

And Climatize was really born from a lived experience of mine, where my co-founder, she and I were completing the first of our master’s degrees in Barcelona, where we had started working together. And through that, this is actually September, 2019, pre-COVID, the global climate strikes were occurring.

And this was in Barcelona. There was a hundred thousand people, protesting in the streets for climate action. And she and I were just blown away by this level of hope and motivation. And yet, there was this sad realization, as I stood up on this bench and looked out over this sea of people, that we would all go home and the next day, nothing was going to be different.

That this huge turnout, really didn’t lead to any tangible carbon reduction. And so, from that, we just thought, wow, if you get a hundred thousand people together, and their best option is to make a cardboard sign, that is a glaring problem. And so she and I started asking people, from those strikes, what is it that everyone could contribute?

And there were many answers, but the common thread was capital. Look, what if everyone just pitched in a small amount? And so we just did a back of the napkin calculation. That hundred thousand people in Barcelona, if they each pitched in a dollar, what would that be? It’d be a hundred thousand dollars that day.

And you could actually build a solar project with that. If you did it for a year, it’d be $36.5 million. You could build a decent amount of solar projects with that. And then we said, okay, wow, Barcelona was just one of hundreds of cities. There were 7.6 million people who showed up for those climate strikes around the world.

Like what if they pitched in a dollar a day? That’d be – those 7.6 million people would generate over $2.75 billion per year. And that’s just at a dollar a day. There’s a lot of upside on that. And we went, wow, this could actually be a meaningful pool of capital that could really accelerate the energy transition.

And for us to actually incorporate everyday people, in that, helping them be active stakeholders, rather than neutral bystanders in the energy transition, was a really compelling mission for us. And so that is what we set off to achieve. And so from there, now we’re having this conversation, and we’ve just crossed an exciting milestone. Last week, we raised the first million dollars for solar projects through Climatize. 

And so it’s been a rollercoaster of a journey, but we’re starting to really see the energy transition, really buying in and seeing that they themselves can be a meaningful player in the energy transition.

Early years and the evolution of Climatize, SEC’s shifting of crowdfunding rules, Working with Greta Thunberg, Innovating a Funding Structure that Works for Solar Developers

Kerim: So all of that was pre-COVID. So tell us a little, I mean, I know how much progress you have made since then. But tell us a little bit about the next few years, all the challenges, what you’ve got, kind of gone through, where you are now, what were key milestones, until you reached where you are now?

Tell us a little bit about that journey. Maybe the creation of the product, what it does, how it’s structured for the key stakeholders. Can you do that?

Will: Sure, yeah, definitely. So it’s a crazy journey in that she and I originally started a company in Spain, actually. And so we had been building in Spain and had actually scaled our team to about 14 people at the time.

And we were going through the regulatory process there, and we were actually building the company. At that time, we won grant funding from the New York State Energy Research and Development Authority known as NYSERDA. And so when we won that grant funding from NYSERDA, we actually reevaluated the two markets, the US and Europe.

And one of the key things that actually made us really, fundamentally rethink our whole company was that in the EU, you could raise up to 5 million euros, through crowdfunding, for any project. And in the US, previously, you would only had been able to raise $1 million. And you know that with solar, a million dollars is not quite the scale of many projects. You know you can get residential, some small commercial, industrial, but you know, there’s really a large market segment there that’s too large for that. 

The SEC, in exactly that same month, changed the laws around crowdfunding so that you could now raise $5 million, for any given project. And so we saw, wow, these two regulatory playing fields are now the same, and we can take these best practices that we’ve been learning in Europe and apply them to the US, and the US was a much more attractive market because there was one regulator, one primary currency, and more or less, one primary language. 

In contrast to the EU, there were 27 regulators, a handful of currencies. I mean, the complexity was exponential there. We actually fundamentally restarted and pretty much just started the company over, she and I. And by taking that big risk and just starting with a blank slate, we were able to then use that grant funding by NYSERDA to sign our first letters of intent in the US, partnered with the Department of Energy, secured pro bono legal representation by Morrison Foerster. And through that, we got all of the regulatory approvals, to then launch the platform here in the US. 

And a funny story, having completed those masters’ in Europe, I actually did my second master’s in Stockholm. And myself and my co-founder, she and I were huge fans of Greta Thunberg.

And every Friday, she was down there at the parliament building, doing the Fridays for future protests. And we went, whoa. What if we go down there? Maybe we’ll meet her. And so we actually went down and we met with her, and we worked with her for more or less a year. And we ran the first wire frames of the product by, like she and her friends. Because we went, look, if they’re never going to use this, then we’ve already lost. You know we have to make this fun enough that someone like that would really feel compelled to use our product. And so the first four like Sigma prototypes that we made, she ended up testing out and giving us feedback on.

And so very fundamental in our journey there, and was just incredible to meet one of our own heroes. 

But now that we’re in the US, we are an SEC registered funding board. What that allows us to do is issue regulation, crowdfunding, capital raises. So what’s happening is a project developer is coming to Climatize, and they are saying, Hey, I want to raise capital for this project. Or I have an existing project.

The structure that we’ve really worked with is, we heard time and time again, from developers, that they needed development financing. Construction is relatively well-understood by banks, and some of that perm debt is accessible, but that is also very limited, when you’re talking about projects below $10 million. The underwriting costs in terms of time and transaction costs, the banks –

Kerim: And also projects that are like early in the developments, like that have not yet gotten it. Well, I guess you don’t start the construction process until after NTP (notice to proceed). But still the small-sized construction projects that are hard to finance is in solar.

Will: Exactly, yeah. So we kept hearing that from developers, and so we kept trying to figure out, how is it that we can create a funding structure that really fills a very meaningful need for the developers, and provides the appropriate amount of protection for the investors? And the way that we were able to ultimately structure this is its back leverage debt on a project, where it’s an asset-backed security so that you essentially, as the investor, have what’s called cross collateralization. 

The project developer uses an existing asset and the cash flows from that asset as a collateral to be able to then go and borrow development financing at a competitive rate. And what this does for you is exhibit – 

Kerim: So, the developer is using a previous project as the collateral for this particular project that they’re raising financing from Climatize.

Will: Exactly. So what they do is they say, okay, you can come invest in this specific project. So let’s talk about a project that previously has been funded on Climatize. There was the RTH Community Solar Project. It was located in East Longmeadow, Massachusetts.

That project, they enabled the community to go and invest in that project. The capital that was raised in that raise, was used to go develop two new projects. But then the investors who invested, they had that asset-backed security, which was backed by the cash flows of that solar project and the actual asset value.

So we had two forms of collateral on there, and it had general liability insurance, in case anything happened to the building or to the system itself. And so that way, the investor had a nice strong backstop on their investment. And the developer was able to go and recycle their capital to the development of new projects.

And that was, part of the innovation there – was one of the real challenges is lending against the development phase is really difficult because that’s often your interconnection studies, your environmental studies, your irradiance studies. It’s all of the early stuff that doesn’t actually have backing. And so if a project doesn’t get its interconnection permit, then that development phase can be a bust.

With this, the investor now has the backing of the solar projects, the PPA, and the actual asset value.

How does financing with Climatize work, Climatize’s current target segments

Kerim: Of other projects, not the project that is being developed, is that correct? Or the backstop is other projects that have been built and producing energy and generating cash flow by the same developer. Is that a correct way to-

Will: So the best way to think about it is that when you invested into the RTH Solar Project that was raising capital on our platform, your security, that debt note was backed by the cash flows of that solar project and the asset value. So if it were the default, you would actually have assignment on that asset, and you would convert to the equity owner of that project.

Now, the developer is using the $500,000 that they raised to go develop two new projects, and that is what allowed them to essentially have that debt at a much cheaper rate than you previously could. Development financing may be in the high t’s because there’s no collateral at that phase.

Now, in contrast, we can get them down to 8-10% for this development financing because they’re actually putting up that asset as collateral.

Kerim: Got it, got it. And what kind of projects are you delivering this service offering on? Is it small commercial, large commercial and industrial, community solar? What segments of the solar market do you mostly focus on?

Will: Yeah, so currently we are doing C&I projects and community solar projects. Those are really kind of the bread and butter. So looking at projects generally between about 100 kilowatts all the way up to maybe 2.5 megawatts. And so with that, that’s where we’ve seen a nice intersection of projects that have been challenged to secure the kind of scale of financing necessary. As well as they’re generally located a little bit either co-located on community buildings, so there’s that nice kind of intersection of community impact with environmental impact. Or very close to a town and a load center, and that way, people feel a little bit more inclined to support things that they can actually see.

And that being one big difference of investing through Climatize versus a green ETF is, with this, you actually have a project that is your thing that you’ve invested in versus the relationship with a stock ticker.

How are Climatize’s Investments Structured?

Kerim: Got it. And tell us a little bit about the structure, the time period. Is each project a single SPV of its own? Are you clumping them together? How long are the investors in for? Can they come in and go out easily?

Will: Sure. So the current investments on the platform have been structured where you’re investing into a single project. In time, we would like to do investing into a holding company that would allow some diversification of projects, potentially, within that holding company.

But that requires a little bit more scale than where we are today. So we’re headed there, but not quite yet. Now, with these investments, it’s a fixed interest debt product. So the offerings that have been on the platform previously were 8% fixed interest, five-year term notes. They pay 2% quarterly, and then principal, at the end of the term. 

They are a liquid. So that is one of the challenges of the assets. However, with that, what the developers are doing is essentially, they are trying to, like I mentioned, recycle that capital into developing new projects. But, ultimately, once we reach a large enough portfolio size to be able to refinance the whole portfolio, which will also enable those developers, who previously couldn’t get perm debt on their projects. By rolling up enough of those projects, we can help them get to that lower cost of capital, that is more appropriately sized for the lifetime of the system. 

And that’s where the kind of phase 2 of our business kicks in, where we really do help these developers, that previously, couldn’t access the kind of cheap capital that you might get from an insurance or pension fund or institutional bank.

They’re often looking for, upwards of a hundred million dollars of aggregate portfolio to do that. And so that’s where we’re coming in, providing this bridge financing, so that we can reach that aggregate portfolio size and help them all refinance at the same time. And that would then provide liquidity to the investors, earlier on.

Our goal is to provide a really premium yield kind of equivalent to bonds or a CD.

Key milestones, Near-terms goals, Revenue Model of Climatize

Kerim: Can you tell us a little bit about the company, too? It’s current structure size, where you guys are in your current state. What are the near term, midterm goals over the next year or two? And how can others help you?

Will: Yeah, for sure. So at this point, we’ve raised $1.25 million for our own company and team. So we’re 7 at this point. We’re currently hiring for a senior software engineer and currently looking for a marketing manager. So, if any of those folks are in the audience, please do reach out directly.

Like I mentioned, we’ve crossed that exciting milestone last week of a million dollars invested in two solar projects, through the platform. It’s now up to $1.1 million, so still making progress on that front, so would really appreciate feedback and anyone to tell us, how did they like the platform? What features would they like to see? 

We’re still very early in this journey, and so through that, your feedback is really coming directly to me and my CTO. And so through that we read all of the emails and make sure that we incorporate this user feedback, so that we’re really trying to deliver on a delightful experience and make it so investing in climate action is fun and engaging and compelling.

So, please try out the platform, and let us know what you think. And please do reach out with any comments and feedback. And then we’re also looking for project developers. If you are an independent power producer or project developer that is seeking to raise development financing, and you have a portfolio of operating projects, we would love to see, how can we help you engage your community, break down the NIMBY effects, get that capital so that you can accelerate your development.

Kerim: One thing I forgot to ask you for the benefit of those projects, so what do you charge the project developers? Or how do you guys make money in this whole product and service offering? 

Will: So we take 5% of the funds raised and 0.5% annually for servicing the investments. Those are charged to the project developers.

So if you are an investor and you invest a thousand dollars, you’re earning on a hundred percent of your thousand dollars. These costs go into the soft costs, so financing the next renewable energy projects. And so long as that makes sense in terms of project margins that we’ve found that that’s been a competitive rate. It kind of splits the difference between in residential solar, you might have 20-25% finder’s fees and maybe a utility, maybe a 1% broker fee. And so we found a nice, happy medium that our project developers have just appreciated the ability to break that vapor lock, kind of start/stop of their project development lifecycle and get this cash to be able to reinvest into developing new projects.

Climatize’s Go-to Market Approach, Climatize’s Collaboration with DOE & NYSERDA, How to get in touch with Climatize

Kerim: You mentioned the project developers, and this is a great offering for project developers. And many of them could contact you. What have you found to be effective in terms of reaching those project developers? And how could a platform like Solar Academy help or other platforms? How are you best reaching your audience, right now?

Will: Yeah. So, we started out really leveraging NYSERDA and their network. That was how we signed some of our first letters of intent. At this point, we’re at 12 developers that we’ve signed letters of intent with, and planning on onboarding them onto the platform shortly here. 

You can reach out to us directly through our website, www.climatize.earth, and from there, there’s a link to fill out the form and contact us to essentially do the due diligence on a project.

We do have 145-point due diligence process that we run on every project. So we want to keep high quality standards for any of the projects that are coming on. And then one of the best ways I would say that we’re really getting qualified deal flow is through a partnership with the Department of Energy.

We’re members in the National Community Solar Partnership, where they have created a consortium of project developers, financiers, and philanthropists and are really creating and experimenting with scalable and replicable financing processes, for in particular, community solar. And so through that, for developers to be part of this consortium, they had to be vetted and kind of have a track record of projects.

And so through that and through the collaboration with the DOE, is in part where we’ve been connecting with many of these developers. So for any developers, I please do ask, reach out through our website. You can also contact me at will@climatize.earth, and we would love to see what you’re working on and see if we can help finance it.

Kerim: Right. Thank you. Thank you very much, Will, for all this information.

Will: Thank you, Kerim. I appreciate the opportunity.