Crowdfunding for Renewable Energy Draft Policy Recommendations

1. Crowdfunding for Renewable EnergyDraft Policy Recommendations 22 November 2016 T. Maidonis (WIP Renewable Energies); T. Aschenbeck-Florange, A. Dlouhy, T. Drefke, F. Martens (Osborne Clarke); C. Arnaud (SolarPower Europe); O. Gajda, K. Kohl (ECN); A. Raguet (Lumo); C. Rumolino (Valorem)

2. The challenge The growing challenges of RES project developers to finance their project using the conventional avenues could lead to the deceleration of renewable energy growth There is a need for making use of innovative financing options that will cover some part of the increased funding requirements and help bridge the existing funding gap. CrowdFundRESaims to exploit the potential of crowdfunding for filling part of the funding gap that RES project developers have been experiencing by bringing them closer to citizens who are willing to participate as contributors through the use of online crowdfunding platforms.

3. Definition of Crowdfunding “… a collective effort of many individuals who network and pool their resources to support efforts initiated by other people or organizations. This is usually done via or with the help of the Internet. Individual projects and businesses are financed with small contributions from a large number of individuals...” Source: K. De Buysere, O. Gajda, R. Kleverlaan, D. Marom, “A Framework for European Crowdfunding” www.crowdfundres.eu

4. European Online Alternative Finance* Market Volumes 2013–2015 Source: Sustaining Momentum: 2nd Annual European Alternative Finance Industry Survey, Sep 2016 * Online alternative finance covers the range from equity-based crowdfunding to peer-to-peer business lending, and from reward based crowdfunding to debt-based securities

5. Crowdfunded Amounts in Europe > 100 m€ 10-100 m€ Source: Crowdfunding: Mapping EU markets and events study, Sep 2015

6. Crowdfunded Amounts in Europe 1-10 m€ Source: Crowdfunding: Mapping EU markets and events study, Sep 2015

7. Geographical Distribution of Crowdfunding Platforms Source: Crowdfunding: Mapping EU markets and events study, Sep 2015

8. Alternative Finance Maturity Index Online alternative finance covers the range from equity-based crowdfunding to peer-to-peer business lending, and from reward based crowdfunding to debt-based securities A positive stance from the government, enabling progressive regulation and tax reliefs, correlates with high volumes in the industry Need for more transparency and independency for aggregated data and a clear European taxonomy Source: Current State of Crowdfunding in Europe, April 2016

9. Crowdfunding for Renewable Energy The part of the public that has an interest in investing even very small amounts of their savings in renewable energy projects www.crowdfundres.eu

10. Crowdfunding for Renewable Energy Community members Other citizens www.crowdfundres.eu

11. Crowdfunding for Renewable Energy intermediaries facilitating the financial transaction between the public and the project developers www.crowdfundres.eu

12. Crowdfunding for Renewable Energy Renewable energy project developers whose access to financing is getting more challenging www.crowdfundres.eu

13. Crowdfunding for Renewable Energy Commercial developers Cooperatives ESCOs Public entities + PPPs www.crowdfundres.eu

14. Renewable Energy Crowdfunding Case Studies www.crowdfundres.eu

15. Review of Crowdfunding Regulation & RES Market Developments www.crowdfundres.eu

16. Relevant Renewable Energy Regulation • EU level • Directive 2009/72/EC for the internal market in electricity (revision expected soon) • Directive 2009/28/EC on the promotion of the use of energy RES (revision expected soon) • Guidelines on State aid for environmental protection and energy 2014-2020 (2014/C 200/01) (de facto but not legallybindingcharacter) • National level (example: Germany) • Renewable Energies Act • Parts of the German Construction and Immission Protection Code www.crowdfundres.eu

17. Renewable Energy Regulation in the EU - Findings • All member states implemented a renewable energies regulation • Grid Access • In most member states, operators of RES power plants are not given priority in grid connection vis-à-vis conventional power plant operators • In the remaining member states the (general) non-discrimination principle applies • Feed-in of power into the grid • In approximately half of the member states, grid operators are obliged to take-off and prioritise the power produced in RES power plants (priority in dispatch) over the power produced in conventional power plants • In the other member states the principle of non-discrimination applies • Subsidy system • Nearly all member states provide for a subsidy regime in favour of RES power • However, the regimes vary to a large extent • Tender regimes • The implementation of tender systems for RES power capacities eligible for promotion has so far not been executed in many member states www.crowdfundres.eu

18. Relevant Crowdfunding Regulation EU level Directives • AIFMD (Directive2011/61/EC) • UCITSD (Directive 2009/65/EC) • MiFID(Directive2004/39/EC) and MiFIDII (Directive 2014/65/EU) • Prospectus Directive (Directive 2010/73/EC) • Payment Services Directive (Directive 2007/64/EC) and Payment Services Directive II (Directive 2015/2366) • Consumer Credit Directive (Directive 2008/48/EC) • E-Commerce Directive (Directive 2000/31/EC) • Distance Marketing of Financial Services Directive (Directive 2002/65/EC) • Consumer Rights Directive (Directive 2011/83/EU) • Unfair Contracts Terms Directive (93/13/EEC) • Consumer Rights Directive (Directive 2011/83/EU) • Unfair Commercial Practices Directive (Directive 2005/29/EC) • Directive 2006/114/EC concerning misleading and comparative advertising (consolidates Directives 84/450/EC and 97/55/EC) Regulations • MiFIR (Regulation no. 600/2014) • Prospectus Regulation (Regulation No 809/2004) • Regulation (EU) No 524/2013 on online dispute resolution for consumer disputes amending Regulation (EC) No 2006/2004 and Directive 2009/22/EC (Regulation on consumer ODR)  the obligation is not yet effective, but is expected to become effective in 2017 • Rome I Regulation (Regulation no. 593/2008) on the law applicable to contractual obligations • Rome II Regulation (Regulation no. 864/2007) on the law applicable to non-contractual obligations www.crowdfundres.eu

19. Relevant Crowdfunding Regulation National Level (either implementing EU directives* or additional local market rules) – Germany as an example Regulatorylaw Capital Investment Code* (Kapitalanlagegesetzbuch) Securities ProspectusAct* (Wertpapierprospektgesetz) Securities Trading Act* (Wertpapierhandelsgesetz) Banking Act* (Kreditwesengesetz) Payment Services Supervision Act* (Zahlungsdiensteaufsichtsgesetz) Trade, Commerce and Industry Regulation Act (Gewerbeordnung) Act on Money Laundering* (Geldwäschegesetz) Retail Investors’ ProtectionAct(Kleinanlegerschutzgesetz) Investment Products Act (Vermögensanlagengesetz) Financial Investments Brokering Regulation (Finanzanlagenvermittlungsverordnung) Ordinance on the Sales Prospectus for Investment Products (Vermögensanlagen-Verkaufsprospektverordnung) Civillaw Civil Code* (Bürgerliches Gesetzbuch) Commercial Code (Handelsgesetzbuch) Limited Liability Companies Act (GmbH Gesetz) Stock Corporation Act(Aktiengesetz) www.crowdfundres.eu

20. Crowdfunding Regulation in the EU - Findings (1/3) • RES crowdfunding is more developed in Western Europe • 17 of 28 member states have Crowdfunding platforms which (also) present RES projects • → 9 of these MS have platforms specialised exclusively on RES (Austria, Finland, France, Germany, Italy, Netherlands, Portugal, Spain, UK) • → 2 of 28 MS do not have any crowdfunding platforms at all (Slovenia and Lithuania) • 8 (10)*of 28 EU MS have implemented a specific crowdfunding regulation (Austria, Belgium, France, Germany, Italy, Portugal, Spain, UK) • 5 (6)* of these 8 (10)* MS have structured this crowdfunding regulation by means of a “crowdfunding exception" which exempts crowdfunding from (some or most) of the regular regulation (Belgium, France, Germany, Italy, Spain) • * The data results from a web research dated 11 October 2016.

21. Crowdfunding Regulation in the EU - Findings (2/3) • The other 3 (4)* MS opted for other solutions • Netherlands & UK: the specific Crowdfunding regulation (that applies in addition to the regular regulation) is left to administrative provisions published by the respective financial supervisory authorities (AFM/FCA) • Austria addresses Crowdinvesting with a specific Crowdinvesting Act providing for a legal framework for SMEs seeking for funding as well as crowdfunding platforms (Alternative Financing Act) • Likewise Finland (Crowdfunding Act) intending to enhance the growth of SMEs and the regulation of platforms, but no P2P lending* • Also the Eastern EU MS have taken or plan steps to implement specific crowdfunding regulation – especially Lithuania* • 3 Eastern EU MS have small RES projects where crowdfunding platforms were utilised as financing mechanism(Croatia, Estonia, Romania) • Most MS without specific crowdfunding regulation apply regular financial services regulation → Crowdfunding often does not fit properly into persisting regulatory regimes • * The data results from a web research dated 11 October 2016

22. Crowdfunding Regulation in the EU - Findings (3/3) Thresholds for exception from prospectus requirement very diverse throughout EU, e.g.: • 100.000 € in Greece • 300.000 € in Belgium • 1.000.000 € in France • 2.500.000 € in Germany/the Netherlands • 5.000.000 € in Italy/UK Scope of exception from prospectus requirement also very diverse in EU, e.g.: • Italy: only applicable to particular equity investments • France/Belgium: only applies to specific equity and lending instruments • Germany: limited to specific lending instruments www.crowdfundres.eu

23. Crowdfunding Regulation in the EU - Conclusions • extremely fragmented regulatory environment • cross-border crowdfunding very complicated / not possible • many persisting regulatory regimes do not fit to crowdfunding • different thresholds for exceptions from prospectus requirement vary – no level playing field www.crowdfundres.eu

24. Results of the Pan-EU survey www.crowdfundres.eu

25. Pan-EU survey of Citizens Factors taken into account in RES investment decisions amongst crowd-investors planning to invest in RES crowdfunding in next 3 years: Overall, there is robust cause for optimism regarding the future of crowdfunding for renewables www.crowdfundres.eu

26. Pan-EU survey of Platforms • Conclusions: • Information asymmetry regarding alternative investment products between non-professional investors and the crowdfunding platforms Need for raising awareness of crowdfunding amongst non-professional investors • Lack of transparency and completeness of information from project developers • Developers should adapt their practices and present more comprehensive and complete description of their projects • Crowdfunding platforms should give clear guidance • Majority of platforms have plans to expand to other European countries Evidence for need for a European harmonised legal framework that would allow and simplify cross-border investments • Lack of engagement between RES project developers and platformsneed to strengthen networking between the two www.crowdfundres.eu

27. Pan-EU survey of Developers • Conclusions: • Most RES developers who have used crowdfunding had a positive experience and are positively in favour of it. • The main advantages RES developers saw in crowdfunding are: • A reliable sourceof financing for financially sound projects that were not considered bankable • Less unnecessary bureaucracy leading to a simpler and faster process • Improvement of public acceptance • No concrete conclusions could be extracted regarding the costs of financing via crowdfunding as this varies a lot depending on the country, platform and project www.crowdfundres.eu

28. Draft Policy Recommendations www.crowdfundres.eu

29. Energy Union & Capital Market Union Energy Union Decentralised energy Diversified energy sources Prosumers Innovative technologies (smart grids) Renewable energy Top-down Capital Market Union • Decentralised investments • Diversified sources of financing • Retail investors • Innovative technologies (internet) • Crowdfunding www.crowdfundres.eu

30. Recommendations on the renewables side(1/3) A regulatory framework that makes renewables a viable domain for citizens to invest in is needed. The Winter package must answer to several challenges for citizens’ participation and investment towards a stable growth of renewables: • Ensure a stable regulatory framework • Make the electricity market fit for renewables • Need for a fair market-based approach • Incentivize citizens’ participation in RES projects • Incentivize RES projects’ financing through crowdfunding www.crowdfundres.eu

31. Recommendations on the renewables side(2/3) The following points need to be considered • Retroactive changes in RES regulation jeopardize ongoing projects, notably those financed by crowd-investors • Prohibitive barriers for prosumers should be avoided (e.g. taxation of self-consumption, high network charges, etc.) • Guidance on the design of RES support schemes for EU-wide coherence that carefully looks at investors’ predictability and citizens’ participation www.crowdfundres.eu

32. Recommendations on the renewables side(3/3) • Increased flexibility in the market offered by new market players can help reduce the integration costs of RES and reduce variable RES curtailment, which can improve the viability of RES projects, including those financed by crowd-investors • RES project developers should be incentivized to offer citizens financial participation(e.g. obligation of means). Such incentive could consist in e.g. an advantage in the tendering process for RES projects offering financing through crowdfunding www.crowdfundres.eu

33. Recommendations on the crowdfunding side (1/4) Regulatory framework • Legal definition for crowdfunding models and market actors • Cross-border investments • open CF platforms’ operations and services to other EU citizens • legal framework harmonization amongst EU can enable cross-border investments • Harmonization • existing laws and regulations differ significantly across the EU --> a range of crowdfunding and RES activity growth rates • Ceilings and thresholds • Prospectus exemption threshold / ceilings per lender or per campaign / ceilings for professional investors / number of investors www.crowdfundres.eu

34. Recommendations on the crowdfunding side (2/4) Regulatory framework • Regulatory barriers for RES developers seeking capital • obligations for banks to offer alternative finance options to “non bankable” but still financially sound projects • Wider coverage • enlarge the scope of companies able to raise funds via crowdfunding in order to also include, for example, cooperatives • facilitate CF investments also through individual savings accounts (ISAs) www.crowdfundres.eu

35. Recommendations on the crowdfunding side (3/4) Transparency, confidence, reputation • Access to information • provide downloadable offer documents / fact sheets with clear information on contractual rules between the platforms and the investors and the processes followed on the platforms and the developers’ side • after sales services to investors and borrowers • Trustworthiness • credibility checks / due diligence on RES project developers • labelling of the platforms to increase the public's and RES developers’ confidence www.crowdfundres.eu

36. Recommendations on the crowdfunding side (4/4) Transparency, confidence, reputation • Fraud avoidance • Crowdfunding platforms must have resolution plans / capital adequacy requirements / client money segregation that ensure loan repayments will continue in the event of a platform collapsing • Project or platform exit • secondary markets where loans initially issued in a crowdfunding platform (primary market) are able to be traded with other investors www.crowdfundres.eu

37. Recommendations on both sides Awareness raising • emphasize crowdfunding as a mechanism that helps fill the financing gap between banks and RES developers • financial literacy through schools, municipalities, universities and local energy agencies • engagement in community energy issues (participation vs. compensation methods) www.crowdfundres.eu

38. Project Coordinator: Thomas Maidonis | WIP Renewable Energies Phone: +49 89 720 12 720 | Email: thomas.maidonis@wip-munich.de This project has received funding from the European Union's Horizon 2020 research and innovation programme under grant agreement No. 646435. The information reflects only the project's view and the Commission is not responsible for any use that may be made of the information it contains.