🌍 Heat pumps are hot

Woltair scales to serve EU clean energy demand

Winter is coming - for Europeans contending with the energy crisis this year, the cold months may mean hard decisions about heating their homes. Space heating accounts for ~70% of EU household energy consumption, with a majority relying on a natural gas boiler. Spiking natural gas prices have accelerated an existing trend of heat pump sales - despite continued headaches for the homeowner throughout the installation process. Woltair’s one click heat pump solution has driven 4x revenue growth over the company’s 5 year journey, and North American VCs have taken note. We Zoomed in with the heat pump “gnomes” Jan and Vit themselves to learn more about the €16.3m Series A announced earlier this week.

What’s Woltair’s founding story, and who’s on the team?

Daniel Helcl founded Woltair in 2018 after struggling with coordinating HVAC installers. Daniel moved houses every 5 years, and made a hobby out of building new homes, but finding HVAC technicians was always a nightmare. He founded Woltair based on the premise of “digitizing craftsmen” to help both the customers and craftsmen be more productive. Two freelance heating engineers - Karel Náprstek and Jiri Sveda - joined in the mission to change the craft with Daniel. Over the past four years with Daniel now the Head of Procurement and Karel now the Head of Technology, Woltair has experienced considerable growth, with bookings quadrupling yearly.

We’re not just a Czech company any more. Jan Hanuš joined as CEO to push our international expansion. We’ve expanded to Poland, and plan to plant the flag in Italy and Germany by the end of the year. Vit Javurek serves as the CFO and leads strategy after spending the past 7 years at McKinsey.

What does “digitizing craftsman” mean?

Craftsmen spend 50% of their time on work that doesn’t translate into earnings. Half of the time that they could be installing heat pumps, they’re instead chasing customers, preparing quotes, filing documentation, and traveling to wholesale markets to buy material. Those tasks are annoying to them! When we say that we’re ‘digitizing craftsmen’, we’re referring to eliminating the administrative tasks burdening our installers.

Why are heat pumps a critical lever for decarbonization?

70% of the energy needs of a residential building come from space heating and hot water preparation. Heat pumps are the most energy efficient solution to both. Compared to other heat sources like gas, electric, oil, or solid fuel boilers, heat pumps present a significant energy demand reduction since they operate at 3-5x higher efficiencies, in addition to electrifying energy consumption which can then be generated renewably.

Are heat pumps really run by gnomes? How do they work?

We’re the gnomes operating the heat pumps - but don’t tell anyone! Just as magically a gnome, heat pumps are a combination of cooling fluids, pressures, and temperature exchanges.

The most common air-to-water heat pump leverages air from the external environment to transfer its heat energy to a coolant, which circulates inside the heat pump. The coolant is then pressurized by a compressor (powered by electricity) which creates heat energy. This energy is subsequently transferred to water used for heating in radiators / floors or as usable hot water. The coolant, after transferring its energy in the water tank, continues to circulate and starts the cycle again.

What does customer adoption for heat pumps look like today vs at-scale?

From a customer's perspective, Woltair’s magic easily and smoothly provides everything in one place, with one click. The unique selling point of our platform is instantly seeing an offer tailored to your respective needs. Based on a few criteria, like the size of your house and energy consumption, you can immediately see a detailed calculation. On top of that, you see some additional desperately needed educational information about the installation process, payback period, seasonality impacts, and so on.

On the back end, we manage a marketplace. We don’t stick to one or two particular brands; we represent more than 20 brands, offering hundreds of different types of devices. Taking into account your requests regarding noise level, price, brand, etc. we provide a custom proposal of 2 or 3 best-fit heat pumps for your needs.

Today in Europe, we see a strong customer adoption of heat pumps driven by very high energy prices and general energy uncertainty. Across Europe, ~2 million heat pumps were installed in 2021. By 2030, over 14 million heat pumps are projected to be installed yearly to achieve the emission reduction objectives. To keep with our decarbonization pathway, we need not only large installation capacities like labor requalification and education, but also a significant ramp up in manufacturing capacities primarily for heat pump assembly. Woltair is contributing to both with our Woltair Academy which offers requalification courses to technicians, as well as by helping to coordinate supply chains with insights and forecasts to adapt faster to changing demand.

Why aren’t heat pumps more widely adopted? What are the upfront barriers that customers face when considering making the switch?

We see four key friction areas:

🔍 Transparency and understanding. Most customers don’t even know what a heat pump is, not to mention how to choose and select one.

💰 High upfront costs. A heat pump costs ~12,000 to 15,000 EUR, which is almost equal to the price of a new car.

📉 Economic performance. Heat pumps are a relatively new technology; commercial adoption only started ~15 years ago during which time energy has been very affordable. Now with rising energy prices, heat pumps present a much more attractive business case for consumers. Payback times for heat pumps have gone down from 9 to ~2 years.

👷 Availability of installers. Heat pump installation is a highly fragmented market of freelancers. 40% of phone calls to European technicians go unanswered because they’re too busy to pick up.

What is Woltair’s solution? How do you address these initial challenges?

We provide a two-sided platform for both the consumer and installer. Woltair has an online e-commerce tool which enables potential heat pump customers to discover available technologies, learn about them, and fill in basic parameters about their property to receive recommendations for heat pumps based on price, design, noise, etc. We can also help the customer bridge the upfront cost by integrating financing solutions in our offer. We’ve partnered up with the largest retail bank in the Czech Republic to offer a green loan and are working on developing a rental scheme.

For technicians, we developed a mobile application that helps them get rid of most of their admin tasks to focus on what matters - the installation itself. The application is linked to our central platform so we can coordinate hundreds of technicians working on hundreds of orders from customers at the same time.

Walk us through the steps to install a heat pump. Where does Woltair plug in?

Heat pump installation is a relatively long and complex process which generally follows the following steps:

  • Research - Discovering heat pumps, learning about them, assessing fit, etc.
  • Selection - Preliminary selection of a heat pump online and selection of installation provider
  • Site audit - Heating expert visits the customer’s house, takes the necessary measurements to design a complete system including the connection to the heating system, which leads to the final project and quote for the customer
  • Contract signing - Contract for installation, including material, labor, etc.
  • Subsidy application - Submitting necessary documents for subsidy application including ID, invoice, technical design, proof of previous device
  • Preparatory works - Removal of the previous heating source, construction of the concrete basis for the heat pump, and making space for the device inside
  • Actual installation - Putting the heat pump in place, connecting it to the heating system and startup
  • Inspection - Certified electricity inspection engineer validates the safety and correctness of electrical installation
  • Final handover - Formal handover of the device to customer and control training
  • Final subsidy application - Submitting other documents for subsidies, such as  installation protocol, confirmation of removal of previous heating source, etc.

We accompany the customer along this entire journey and build transparency into each of the steps. Through our digital platform, we have live visibility into what’s happening on every job and share that with the customer. They always know who’s coming and when to their house, where their project stands, and what’s next.

What’s the alternative if not Woltair?

Customers can go to local installers but they would only offer only one brand of the heat pump since they work with a specific supplier. If they want to compare, they would have to reach out to other installers, which is a hassle. At Woltair, we’re trying to be more than just heat pump installers - we provide an energy solution management platform for the customer. Customers can go to our calculator to find the best overall solution that helps them reduce their energy bill. For some customers, that could be a heat pump, for others, it could be a PV solution which we also provide. The digital platform is technology agnostic so we can easily plug in and adopt any new green technologies. There’s also an important education component. The installation is only the beginning of the game, afterwards you still need 10-15 years of service and maintenance.

What are the customer economics for heat pumps and solar vs natural gas boilers?

For a typical European family house, the building needs 27MWh of energy p.a., of which:

  • 21 MWh for space heating
  • 3 MWh for hot water heating
  • 3 MWh for electrical household appliances

Then you have to account for energy efficiency and building structure - with a typical gas boiler, the house would consume from the grid:

  • 25 MWh of gas for heating (typical gas boiler operates at ~85% efficiency)
  • 3.6 MWh of gas for hot water heating (same efficiency as for heating)
  • 3 MWh of electricity for the appliances

With current energy prices in Europe, a household would spend ~3,600 EUR/year on energy (for 28.6 MWh of gas and 3 MWh of electricity).

With a heat pump, the energy profile would look significantly different:

  • 6 MWh of electricity for heating (heat pump efficiency of 350%)
  • 1.2 MWh of electricity for hot water preparation (same efficiency)
  • 3 MWh of electricity for appliances

By comparison with current energy prices, the heat pump home owner’s yearly energy cost is ~2,100 EUR/year (assuming no gas use, only buying 10.2 MWh of electricity @200 EUR/ MWh which is still conservative). Since the heat pump costs ~11,000 EUR (including hardware and installation), the payback is 7 years (11,000 EUR investment / 1,500 EUR yearly savings, not assuming any further acceleration of energy price growth). If the customer qualifies for a subsidy (~40% of the investment covered from public funding), the payback would be 4-5 years.

However, in the case of replacing electric boilers with heat pumps as heating source, the payback period can reach 2-3 years currently (through reducing electricity consumption from 27MWh to 10.2 MWh yearly).

As a quick caveat, natural gas accounts for ~30% of heating as a primary energy source in Europe. For other sources (e.g. electric boilers, coal boilers, oil boilers, etc.), the economics will vary.

You’ve served 3,000+ customers and grown 4x since launch. That’s impressive! Why do you think Woltair’s solution has really resonated with your customers?

Woltair provides service and support to the customer along the entire process and really emphasizes the education component. We don’t push heat pumps or PV systems to everyone, but rather provide objective guidance on how to best save money on energy. Then customers can access a variety of brands of heat pumps to choose the best-fit solution. We’ve also set up an effective model for sales and installation by externalizing site audits and developing an integrated digital platform that coordinates hundreds of technicians across many regions. This allows us to serve customers across large geographic regions unlike traditional, local players.

Heat pumps seem to be heating up lately (hooray!). How have you seen customer demand shift with the recent European energy crisis and spike in natural gas prices?

Demand is booming across Europe from a combination of factors:

  • Increasing and uncertain energy prices
  • Subsidy and incentive programs implemented by the EU and local governments
  • Greater public awareness of sustainability

In general, the shift has involved accelerated demand for heat pumps across Europe. We also see some interesting shifts in motivations for certain market segments:

  • Stronger adoption among electric boiler owners and gas boiler owners (as opposed to , say, coal boiler owners) motivated by improved customer economics driven by the increase in energy prices
  • Increase in interest among lower-income customers, as adoption becomes more of a household budget question than a modern technology adoption one; this also drives increasing demand for financing solutions to help with the upfront costs
  • Decentralization of heat generation. In central and eastern Europe, many houses are heated with central heating (typically coal / gas powered), which is also seeing considerable price increases, incentivizing customers to disconnect from the heat grid and adopt their own heat pump

Is there enough supply - are manufacturer OEMs keeping up pace with demand?

This is the key pain point of the industry right now. We mentioned the capacity of the technicians, but it’s even worse on the manufacturing side. Nowadays, the lead times are between five months to a year. In some places, technicians have to tell customers to call them in the second half of next year, without even providing a quote.

This is a worldwide problem and we’re seeing the pattern everywhere. It will probably be fixed in a year, because everybody is investing heavily in plants and manufacturing capacity but it’s not an overnight exercise.

The market is extremely fragmented. There are some manufacturers who have inventory, and some who don't, but nobody knows. At Woltair, we’re building an aggregator approach. Since we’re listing more than 20 brands, customers can make choices not only on the performance metrics, price and so on, but also availability. We can tell them that if they choose a particular heat pump, they may have to wait for one year. If they want something sooner, we can show them which brands are available.

What do the incentives or policies in Europe (e.g., REPowerEU) look like?

There are many incentives in place in Europe, both from the EU-top down and at the local government level. Almost 40% of the EU Just Transition Fund and Recovery and Resilience facility is focused on sustainability and building energy efficiency and supports the implementation of strategic initiatives such as REPowerEU. On national levels those translate into specific incentive mechanisms to support the adoption of specific technologies. While schemes vary and are not comparable among countries, on average a European customer can recover ~40% of their investments into heat pumps and PV from public sources. In Italy, with their SuperBonus scheme, subsidies are as high as 110% of the cost.

But many subsidies are paid after the installation which means customers still need to front the upfront cost. Government policies can also be fickle which can be demotivating for customers. We offer strong financial tools and mechanisms to ease some of that hassle.

What’s different about the US market vs EU market when it comes to heat pump deployment?

A lot! Though, to start with, the problem is the same around the globe - increasingly expensive energy creates carbon emissions. As for our US plans, we welcomed North American investors in this latest round and discussions are already underway about when Woltair will send a paratrooper to the US. The sooner the better but we still need more time to settle down with our current model and prove replicability. Poland is our test market, and we’ll make lots of adjustments before expanding into Italy and Germany next. Once we prove these three markets, we’ll ideally go to the US by the second half of next year.

Do you see any labor gaps or shortages across the value chain?

Perhaps this is a very McKinsey answer, but I’d challenge anyone who calls it a “labor shortage”. Installers spend 50% of their time unproductively on non-revenue producing tasks so, hypothetically, without changing the number of installers but by improving their productivity, double the possible amount of heat pumps could be installed in the same time period.

Second, we see a surplus of people who want to pursue this career opportunity. Though, there’s a career development and upskilling opportunity since the heat pump is a complex machine which combines cooling, heating, and electricity in one device. These high skilled jobs aren’t going away - the demand is only strengthening.

What other home electrification products might Woltair expand into?

Certainly, we’re actively looking to expand into EV charging. We’re exploring opportunities in hydrogen, energy storage, and the whole topic of energy communities where power is generated residentially and then traded amongst themselves. Woltair could step in to play an enabling role.

Congratulations on your €16.3m Series A announced earlier this week! Who’s involved, and - most excitingly - what’s next for Woltair?

Most significantly, all 180 Woltair employees are heavily involved in continuing to build a great company and culture to make a dent in changing the energy of the world! But among the investor group, we have 3 new investors joining in this round. Kristin Aamodt from ArcTern led the round as the first investment from their new fund. Westly Group from the US is joining us, alongside a local Czech group called Aternus. Existing investors Kaya VC, Inven Capital, and Movens Capital also participated in this round.

As for what’s next, we’re on track to continue the 3-4x growth trajectory that we’ve set over the past four years. Second, we’re looking to expand into new international geographies including opening Italy and Germany by the end of this year with eyes towards the US in years to come. Lastly, we’ll use the new fundraise to finalize and commercialize our SaaS solution for independent technicians, which we call SuperFix.

Are you pumped about heat pumps? Woltair is growing the team to spread their mission of changing the energy of the world. In particular, they want to hear from folks eager to spearhead Woltair’s future expansion into the US market. Special thanks to Sarang Mani for pumping up this conversation!

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