From time to time we bring you cleantech concepts embodied in disruptive new business models. Thermondo, a Berlin-based company providing end-to-end service for residential heating, is one of those companies. Philipp Pausder is founder and managing director. We had the chance to sit down with him at the Cleantech Forum in January, and later on we caught up with him by phone for an update.
Anticipating that the energy market will become increasingly decentralized as homeowners generate and store their own power, Thermondo has taken on the role of third-party heating provider and energy broker, shouldering the entire process of helping the customer achieve a better heating solution. This includes helping households with the planning, financing and installation of home heating systems. Thermondo employs close to 300 people across 50 cities in Germany.
In 2016 the company introduced the heat lease product Thermondo365, a full-service managed heat solution for homeowners, that has no up-front costs.
The company has now moved from becoming a straight technology-enabled heating provider to an energy market disrupter with a focus on heat. The next step will be leveraging its algorithms and technology to transform itself into what it calls a “digitally enabled European residential energy services platform.”
CC: How did you develop this business model that takes on the entire process of helping homeowners with more efficient heating solutions?
Pausder: We have been working on our concept since 2012, and we launched the first product in 2013. We started the company because – as we find in every developed country — the consumer heating market is an underserved segment. Industrial processed heat is efficient but households are not. As a result the consumer marketplace is super-fragmented. Now we are changing that. Our intent is to bring transparency and transactions to the marketplace. The first step was an algorithm enabling transfer pricing, and the generation of transactions. We then realized that this alone did not work, so we signed up partners to carry out the installation. However, they were not reliable as service providers. Therefore we decided to become installers ourselves. We are now an end-to-end service provider, and we own the customer relationship and the installed base.
CC: Isn’t an end-to-end solution pretty expensive to maintain and organize?
Pausder: Not really. What we do is we mitigate fixed costs. Based on our experience and data analysis, we have a clear understanding of lead times, we know our installation capacity, we know the radius of the team, we know the target dates, and know how and when to generate that lead. We have two tools: lead generation and pricing. Ultimately we will be like an airline, with dynamic pricing. We have two software engines. Manfred is our software algorithm. Diego is our second engine, a specific project management suite for scheduling and planning. On a business level this produces two cost benefits. First, we can scale and educate salespeople using software. Second, the software produces a bill of quantity — we can be an inventory-free company, using just-in-time delivery. Installers have android tablets with an app for themselves and for the customers, the customers can easily sign, and we can tap into wholesale info using our ordering software. We know immediately about hardware availability for sales opportunities.
CC: What’s the difference between Thermondo and Solar City’s business model?
Solar City is an electricity play, whereas we are a heating play. They have great management vision but their model is based on a tax equity mode. Their business is connected to subsidies and incentives. Of course, there are many parallels – we both have a large degree of integration, training, etc.
One area where we can expand our business significantly in comparison to Solar City is by selling adjacent services to customers. This is why we are moving towards a fully digital energy platform. We are currently selling other services including maintenance. 50 percent of our customers pay an average of 160 to 170 Euros per year. And for others, the maintenance is automatically included when you lease a heating product.
CC: Are you trying to move people towards renewable energy sources for heating?
Pausder: Our general point of view is that any newer heating medium is a significant improvement for the environment because of much higher efficiencies. We also sell and install solar thermal systems. We definitely want to move people towards renewables, but there is still demand for oil and gas systems.
CC: Are you able to help customers save energy and reduce costs through other means, such as smart meters, smart thermostats and mobile apps that remind them to turn equipment off?
Pausder: Germany is behind in smart meters, but homeowners can purchase smart thermostats for homes from us. We are also working on our boiler connectivity strategy and will be able to talk more about it in 6-9 months.
CC: Do your salespeople or advance technicians conduct energy audits to determine how energy use can be more efficient?
Pausder: Our salespeople do collect data and enter the data into the software to provide the customer with the best solution, but we do not conduct formal audits.
CC: What are you most excited about now?
Pausder: Last year we launched our lease product, Thermondo365, which typically is a 10-year contract. This gives us contractually guaranteed customer relationships of 10 years, with no churn. Additionally it provides us with the opportunity to cross sell more value-added services into that relationship. Sales have been going very well, with 20 percent of our customers choosing a 10-year lease. We have been able to raise 10 million USD of debt for that product.
CC: What is your next step?
Pausder: We are working on opening up a service for B-to-B real estate asset management so we can sell into that sector. We are also becoming a reseller of gas and power. The gas will be private labeled by the utilities.