The Exchanges

Q And how long does it take to install it? I mean, if somebody's like, yep, let's do it.

A The actual work that takes place at the house, you need one day, two days-ish to put in the ground loops, depending on how big the house is and how many ground loops are required. And then installing the heat pump typically also takes about a day, though some homeowners get a water heater or ductwork or things like that, and it can take a little bit more time. In terms of our wait times, they've varied, um, at our worst. We forced our customers to wait over a year in some markets because we had so much demand, but now we've managed to bring it down. It's more like four months, so we've made a lot of progress there.

AI assessment note: “you need one day, two days-ish to put in the ground loops”

Q I'm curious, why, in your view, is this system, is the geothermal system better or more efficient than, like, you know, heat pumps that use air, for example, to cool and heat a home?

A Yeah, I mean, I don't want to say one is necessarily better than the other in general. I think that in some cases air source is better, and in some cases ground source is better. But let me tell you, um, when ground source or geothermal is better. So for one thing, especially in places where it gets cold, the cost to operate a ground source heat pump is about half of the cost to operate an air source heat pump because you have access to To that constant temperature ground. And that's allowing you to always run your heat pump at high efficiency. Air source heat pumps run at very high efficiency in mild weather, but when it gets really cold, they lose efficiency. And that means that if you step back and look at sort of the more societal view, one of the challenges that we'll face when we convert all of our heating systems to heat pumps is that Peak demand will become a problem in the winter, and with air source, this is especially challenging. So, um, a study was done for the state of Rhode Island of just, like, what will happen if you convert all your heating systems to air source heat pumps, and the peak demand on that grid would double, and the reason for that is on the coldest day, All of the air source heat pumps will be operating at their least efficient, and they'll all do that at the same time. Whereas with ground source, peak demand would increase by 17%. So it, it has t…

AI assessment note: “because you have access to To that constant temperature ground.”

Q So help me understand, how do these tubes with water underground heat your home? How does that work?

A So it's the same exact technology that you would find in a refrigerator or in an air conditioner, but the way it works is that 55 degree ground will bring that water running through it to 55 degrees. Then that 55 degree water will go into the heat pump and pass through a heat exchanger where it will exchange its heat with a refrigerant. That refrigerant's been specially selected to expand and sort of Vaporize at 55 degrees, and then it's run through a compressor, which uses electricity to compress the refrigerant. And so basically, when you compress that refrigerant, the temperature goes up. So now you have a very hot refrigerant. You can pass that through another heat exchanger with the air that you're going to send through your house. So it heats the air to, let's say, a hundred degrees or so, and then you just send that air through your house as you normally would. It sounds really complicated when I say it like that, but it's a very common technology. Again, every air conditioner, every refrigerator works in this way.

AI assessment note: “the way it works is that 55 degree ground will bring that water running through”

Q Built This Lab. Welcome back to How I Built This Lab. I'm Guy Raz. My guest today is Kathy Hanoon, founder and president of Dandelion Energy. To be clear, I mean, this is, like, this dramatically reduces carbon emissions, right? But it's not totally carbon neutral. I guess it could be if you were using, like, solar power to power your home, right? Then it would be totally carbon neutral.

A That's right. The way to think about the carbon neutrality of geothermal, it's similar to electric vehicles. Without heat pumps, You have just millions of point source emissions, so every furnace or every boiler is emitting its own stream of emissions if it runs on gas or oil or propane, and at least in my opinion, the only practical way to solve the problem is to electrify the entire fleet of heating equipment, and that will be done almost exclusively with heat pumps. And then what you've done is, yes, they still use electricity to run, but then you can just focus on cleaning up the grid, and once the grid is cleaned up, you'll have a totally carbon-free system.

AI assessment note: “That's right. The way to think about the carbon neutrality of geothermal”

Q Because it was like 50, 60,000 dollars up front to install this system in an average home at the time, right?

A Yes, that was the typical price of Gio, actually quite a bit higher than that in the markets in New York that we started in. We went in with a much lower price, but we were not making money at that point in the company. But I will say the one thing that was going really well, even from day one, was people wanted to buy the product. And to the upfront cost point, we launched with a financing option. So from the beginning, homeowners that signed up with us Would come out ahead. Like, you could come out cash flow positive against fuel oil, and there was just, like, overwhelming demand, which is great, but also in itself created problems for us because we just didn't have the contractor network to support that demand, and we had, uh, mispriced at the very beginning, so we were also, the more we sold, it was sort of, like, the deeper the hole we were digging for ourselves. So those were the early years.

AI assessment note: “Yes, that was the typical price of Gio, actually quite a bit higher than that”

Q Okay, so after this big revamp to the company, what did the customer experience look like?

A Our promise to the homeowner then and now, to be honest, is just, you're a homeowner, you just want to buy a heating system that works. And so, we'll come in, tell you how much you'll save by switching to geo, in the same way a solar company, for example, would tell you, this is your return on investment, this is how much you'll save. And then we'll do everything. We'll remove your furnace, do the right design for the geo system, Oversee the drilling or today we do it ourselves. We today do everything ourselves. We install the heat pump, uninstall your furnace and air conditioner, and then get the whole thing permitted and inspected. We'll handle the rebates for you, right? Like we just want to make this simple for the homeowner. So we take on the complexity ourselves.

AI assessment note: “We install the heat pump, uninstall your furnace and air conditioner, and then get”

Q All right. So you start this basically building this vertically integrated company. How were you able to bring costs down? Because initially they were 60, 70, 80,000. I guess now it's sort of average is about 25 to 30,000. Is it just a more efficient process or what?

A There are a few different things. Um, certainly the policy landscape has been a great tailwind for us. Um, starting this company You know, Trump was president. Oil was relatively inexpensive. People weren't talking about heat pumps. I feel like I could have never imagined how much would change in our favor in the policy landscape since that time. So there's now a 30% federal tax credit. So for every homeowner who buys geothermal, they just get 30% off of the price from that. The utilities have incentives that are Worth 10 to 20,000 dollars that go to the homeowner. Um, and there's just, like, so much talk about heat pumps all the time, which is great. So that has been hugely helpful. But in addition to that, I think one of the things that was making geothermal very expensive in the past in the U.S. is that because it was so niche and so infrequently done, every time a geothermal system was Put in, it was kind of like a highly customized one-off project. There was no assembly line. There was no company who is trying to figure out how to standardize the process and then do every step of it as efficiently as possible, and that is the role that we are playing. So to give one example, only 18 months ago we had two drilling rigs of Standaline, just small rigs that we've Adapted to be optimized for geothermal in small suburban residential yards. So we went from having two to now we ha…

AI assessment note: “if you have your rigs and your people... you're able to amortize that overhead”

Q So just, can you quantify what you discovered? Like, what did you find?

A If you look at, for example, in the Midwest, comparing using a fuel to using geothermal, your operating costs, so how much you have to actually spend to heat your home, it's maybe a fifth with geothermal. It's similar in the Northeast, and emissions-wise is similar. It's a huge decrease, and so then, of course, It's like, well, why, why don't people use this if it's so inexpensive and so clean? And the answer is very clear. It's just geothermal heat pumps are very expensive to get up front, and were very, not just expensive, but like, for most normal people, very difficult to know how you would even go about getting one, because it was such a uncommon product.

AI assessment note: “your operating costs, so how much you have to actually spend to heat your home, it's maybe a fifth”

Q So how did you do that? What did you find?

A This was, uh, something that we iterated on quite a bit in the early years. Um, we experimented with a few different types of rigs, but we ended up taking a trip to Sweden, which you mentioned. It's sort of the geothermal capital of the world. 20% of homes in Sweden use geothermal heat pumps. Pretty much all new homes going in use them. So they've managed to bring the technology to scale. So we made a trip to Sweden, and The companies that do this there were actually extremely helpful in sort of teaching us. Here's how we do it. Here's the equipment we use. Here's our process. And, uh, we've imported most of that back to the United States and really adopted the same rigs they use over there.

AI assessment note: “we ended up taking a trip to Sweden... we've imported most of that”

Q from what I've read, the first year, and maybe two, was rocky. It was not, did not go as planned, because I guess initially you sort of decided to try and contract with existing HVAC companies that focused on traditional HVAC systems, not geothermal, and I don't know, it was just, you ran into a lot of challenges. Can you, can you talk a little bit about them, enumerate them?

A Yes. We ran into so many problems. I guess to start, the hypothesis we had when, when we spun out and started the company is we're going to create a marketplace. We'll contract with HVAC installers. We'll make this available to homeowners. We'll match homeowners that want geo with these contractors who we are going to teach to install it. We'll provide the heat pump and do some of the drilling because we were testing some different ways we could approach that problem at that point. And that will be the company. So we raised the money. I moved to New York. We made the commitment. It's sort of a one-way process, and then it became obvious that that vision was not going to work. First of all, the, the partners, the HVAC contractors we had chosen were not used to selling geothermal, of course, because they did not sell this product, and so it quickly became clear, okay, we're gonna have to sell this product, so we hired Sales leader. Then we realized, you know, even when we sell it and pass it along, like these contractors need a lot more support than we're giving them. And it's not their priority because they have their own business and their own customers that they're always going to treat before ours. And so that, um, led to a lot of customer experience issues, as you can imagine. Um, And the economics of it were also very difficult.

AI assessment note: “First of all, the, the partners, the HVAC contractors we had chosen were not used”

Q But you also had, you didn't have, you know, huge buckets of cash to build out your own team of installers. So what did you do?

A I remember this, um, decision point because I was actually on a hike with my dad, and, um, my mentor, Dan Yates, who is chairman of the board at Dandelion, he called me, and I, I took his call, and we sort of acknowledged this truth to each other, like, this, this model isn't going to work, and it was kind of clear that if the subcontractor model isn't going to work, Really, you don't have that many options if you want to keep going except for just trying to insource that workforce. You know, like, what else are you really going to do? So we had been, or at least I should say I had been, trying to avoid that truth for some time because it was, frankly, intimidating to think about leasing a warehouse, hiring electricians, plumbers, and HVAC professionals. Figuring out all the vehicles, right? Like, I didn't think of myself as somebody who could know how to run a true HVAC company in that way, but we had this call, and it was kind of like, well, this is what it's gonna take, and so we made the decision to do it, and I'm really glad we did, because it allowed us to grow the company, improve the customer experience so much, Improve the economics of our installs. We learned so much more quickly because we were actually doing all these things ourselves and truly understanding what all the problems were. So yeah, it was a very meaningful decision point in the history of the company.

AI assessment note: “we made the decision to do it, and I'm really glad we did”