Residential Geothermal with Dandelion Energy

Energy

Feb 15

Dan Yates is the CEO and Chairman of Dandelion Energy, a Series B Stage startup deploying solutions for residential geothermal energy.

As Dan explains it, residential geothermal distinguishes itself from utility-scale geothermal by not aiming to exploit a scarce, underground heat source for electricity generation through turbines. Instead, the process involves circulating an aqueous solution through a closed loop underground. This allows the system to harness the stable temperature of the soil beneath and employ it for both heating and cooling functions in a residential ground source heat pump. Essentially, residential geothermal aligns with the trajectory of residential HVAC heat pump adoption, serving as a means to maintain a dependable and efficient temperature for optimal heat pump performance.

Dan is a repeat guest on My Climate Journey. He joined Jason way back on Episode 7 to recount his journey as the Co-founder and the CEO of Opower. Dandelion's Co-founder, Kathy Hannun, was also on the pod way back on Episode 35. A lot has changed in that time.

In today's conversation, we touch a bit on Dan's Opower journey, but most of the time is spent on Dandelion and geothermal. We also cover Dandelion's current geographic focus areas, the technologies it has developed, how they operate the company, the business model, the recent tax incentives from the Inflation Reduction Act and other legislation that have benefited the company, and so much more.

Episode recorded on Jan 18, 2024 (Published on Feb 15, 2024)

In this episode, we cover:

Dandelion's mission to bring residential geothermal to scale
Dan's experience at Opower and its thesis
Difference between residential geothermal and utility-scale
How residential geothermal works and its benefits
Dandelion's closed-loop solution
Geographic focus areas of Dandelion Energy
The company's heat pump technology
Recent tax incentives for geothermal energy
An overview of Dandelion's operations
The company's business model and funding to date
Dandelion's biggest challenges and barriers to growth
Estimated cost breakdown for homeowners looking to switch to geothermal with Dandelion
Career opportunities with Dandelion and how folks can spread the word about geothermal

Cody Simms:
Today on My Climate Journey's startup series, our guest is Dan Yates, CEO and chairman of Dandelion Energy. Dandelion Energy is a Series B Stage startup that is deploying solutions for residential geothermal energy. Dan is a repeat guest on My Climate Journey. He joined Jason way back on Episode 7 to recount his journey as the co-founder and the CEO of Opower, and Dandelion's co-founder, Kathy Hannun, was also on the pod way back on Episode 35. A lot has changed in that time. We touch a bit on Dan's Opower journey in today's conversation, but most of the time is spent on Dandelion and geothermal.
Dan has served as executive chairman at Dandelion for the last five years or so, and he assumed the CEO role recently, in mid-2023. As Dan explains, residential geothermal is different than utility scale geothermal, as the goal is not to tap into a rare, underground heat source that can drive turbines to generate electricity. Rather, with residential geothermal, and aqueous solution is run underground through a closed loop so that it can access the consistent temperature of underground soil and use that to drive the heating and cooling functions of a residential ground source heat pump. So in many ways, residential geothermal is an extension of the residential HVAC heat pump adoption curve, and is a way to help ensure a consistent, efficient temperature for heat pump operations.
Of course, we go into way more than that in our conversation, including Dandelion's current geographic focus areas, the technologies it has developed, how they operate the company, the business model, the recent tax incentives from the Inflation Reduction Act and other legislation that have benefited the company, and so much more. But before we start, I'm Cody Simms.
Yin Lu:
I'm Yin Lu.
Jason Jacobs:
And I'm Jason Jacobs, and welcome to My Climate Journey.
Yin Lu:
This show is a growing body of knowledge focused on climate change and potential solutions.
Cody Simms:
In this podcast, we traverse disciplines, industries, and opinions to better understand and make sense of the formidable problem of climate change and all the ways people like you and I can help. Dan, welcome to the show.
Dan Yates:
Nice to be here.
Cody Simms:
Well, Dan, this is times two for you on my Climate Journey podcast, though I believe in quite a different context when Jason had you on in the very early days of the pod, given that you are now fully up and running and operational and running quite an impactful climate tech company.
Dan Yates:
Yeah, it's great to be back. I can say the same thing about MCJ. When I was on, it was really just a twinkle in Jason's eye, and now it's a full-fledged investment firm and really exciting to see that growth, and I'm happy to be back.
Cody Simms:
So Dan, you've been on the show before, and it was in your transition time after you'd left Opower, and you were the executive chairman of Dandelion, but now the new news is within the last six months or so, you've stepped into the CEO role.
Dan Yates:
Yeah, that's right. It's been an awesome journey here at Dandelion. Happy to give you sort of the backdrop of that, but I got introduced to Dandelion five years ago when Kathy Hannun, the founder, and her co-founder, James Quasi, spun it out of Google X. I fell in love with the business, I invested and joined the board, then quickly after that, Kathy went on a maternity leave, and I stepped into the breach to help her build out her management team and kind of temporarily pilot the business. And that's when I got really sucked in. And ever since then, I've just been really involved with the business, I've invested in almost every round and been just pinch hitting across the board, and everything ranging from the first financial model to going really in depth into the drilling technology and helping us evolve that and improve it, and recruiting our last CEO, who ran the company for four years.
And this summer, he decided it was time, for personal reasons, to step down. And the time was right for me, and I decided to take this step, which some have identified as an inevitable outcome, because I've been so obsessed with Dandelion from the beginning. Dandelion's mission is to bring geothermal to scale, and not the geothermal like Iceland or Yellowstone, where we hunt for geysers and use superheated seam to make electricity, but geothermal where we use the ground beneath your house as a heat exchange to deliver a very efficient furnace and air conditioner. So I joke that we do lukewarm geothermal. We wouldn't know what the heck to do with the geysers.
Cody Simms:
So it's like the ground as an insulator, as opposed to the ground as a crazy steam heat source?
Dan Yates:
Exactly. What is really beautiful about it, it's actually the ground as a long-term store of solar energy. So that's what we're doing, is we're exchanging and sucking heat out of the ground, and that heat has come from the sun. And it's durable, it stays there all year round, so in the middle of the winter we can draw on it to heat your house, and we can also shunt heat to it in the summer to cool your house, and it's very, very efficient.
Cody Simms:
And I know your co-founder, Kathy, was also on the pod in the early days of our pod as well, I think episode 30-something, talking about Dandelion, though much has changed since then. And for you, when you came on, I'm sure you talked some about Dandelion, but a lot of it was also about your experience having built and run your prior clean tech company, which was Opower. Maybe share a bit about that experience and the outcome that that ultimately generated.
Dan Yates:
Yeah, I'll give a little bit of personal context. So I studied computer science in college, and when I graduated, it was the .com boom, and I moved out to the Bay Area to start a business. And my first company, with a very good friend of mine, we started an educational software company that ended up being a small success, and we were acquired by a publisher, Houghton Mifflin, after about three years. I stayed for another year. And then I was in my mid-twenties, and I took off some time, and I did a crazy trip with my wife. We drove from Alaska to Tierra del Fuego, over a little bit less than a year, drove the whole Pan-American Highway. And it turned me into an environmentalist, and that wasn't the plan, but I had left on this journey thinking that the US was the most mowed over part of the Americas and that I was going into wilderness, and in fact, it's quite the opposite.
There's only a few places in the Americas, and many of them are in Canada and the US, that are still really pristine wilderness. There are parts of the Amazon still, but for the most part, people are everywhere and were eating up all the resources. That was more of a revelation back in 2004 or 2005 than it would be now - I think we've all been educated on this - but that's what got me moved into the environmental world. And coming back to the US, I decided to focus on where I thought we had the most opportunity, which was in energy. We're just still energy gluttons. And Opower was really founded on the premise that people use more energy than they need to, and they just don't know anything about their energy use, and that if we could give them the right information in a timely fashion and put it in context that was motivating, and the most motivating context ended up being the context of similar homes near you, your neighbors, that people would change their behavior.
And it worked, and we turned it into a pretty big company. We ended up going public in 2014. We founded the company in 2007. Seven years later, we were a public company in the New York Stock Exchange, and then we ended up getting acquired by Oracle in 2016. And the company's still running strong as a division of Oracle. I'm really proud of the people who are still there carrying the flag, because the last time I checked, Opower had delivered over 30 terawatt hours of energy savings, which puts it in the league of some of the largest residential solar companies in the country, and all through motivating behavior change.
Cody Simms:
I'm curious on your thesis there, is ultimately what you learned that people care about saving and managing their energy usage, or is it they care about saving and managing their money?
Dan Yates:
That's a great question. I'd actually say it's neither, it's both and neither. So we have millions of decisions that we need to make every day, ranging from how long should I brush my teeth to do I want to buy more apples or cucumbers or Oreos, and we've evolved over millions of years to draft off of others for most of our decisions, because otherwise we just simply wouldn't have the computational capacity to handle every question. Elon Musk is the only guy in America who actually does first principles thinking on things, gets all the way down to the physics equations before he decides what he's going to eat for breakfast. And for the rest of us, we say, well, what's everybody else doing? And by the way, that's not a knock on Elon Musk, that's a props to him.
And what the insight was, which was not our insight, but was one we borrowed from the research, was that giving people information that showed them, hey, you're using 20% more energy than similar homes near you and here are the three ways you can save, got people off the dime. And the way they saved were simple behavior changes like adjusting the thermostat down or closing the windows or upgrading to efficient light bulbs. But that context of like, oh, I have an addressable opportunity here, and then each person rationalizes it differently. Some of them wanted to be green, some of them wanted to save money. That varied based on personal context.
Cody Simms:
So let's dive into the Dandelion story. So you talked about how you are not out there hunting for geysers. You're not trying to drill down into the cracks of the earth's crust and let a bunch of steam come up that drives turbines. As I understand it, that is how grid-scale, utility-scale geothermal is hoping to work. Is that accurate?
Dan Yates:
That is accurate, and I would qualify it. It's worth saying these two technologies, what you just described and what we do, they really have nothing in common other than at some point in the past they were given the same name. So yeah, what you described is utility scale, and it's an electricity production generation scheme. It's an alternate to a coal-fired power plant or a bunch of solar panels.
Cody Simms:
You hear of Fervo, you hear of Quaise, you hear of Zanskar. These are companies that are playing in that world of trying to find pockets of existing untapped heat underground that you can tap into. It will drive turbines that will generate electricity, and you can use it instead of natural gas or coal?
Dan Yates:
You got it.
Cody Simms:
Okay. You guys instead, as I understand, recognize that the ground holds a fairly constant temperature, and so it can be an insulator to things that you can run through it that can help you regulate temperature. Is that the right way to think about it?
Dan Yates:
Yeah. To really understand it, you have to understand how a refrigeration cycle works, which we are surrounded by them, refrigerators obviously, as well as air conditioners, but actually most of us don't spend the time to think through how does this work precisely? Refrigerants allow you to move heat around. So the way refrigerator works is it moves the heat out of the fridge, which is why if you hold your hand at the bottom of your fridge, you'll often feel hot air coming out. That's the heat that's getting shunted out of the fridge. So what Dandelion does is we use, it's a geothermal system that is first and foremost, before I go any more of the physics minutia, we're in the business of electrifying heat. So we're all familiar with how everybody's electrifying transportation, people are buying electric cars, Tesla's the most valuable car company in the world, everyone's chasing after that, and that's sort of off to the races. What hasn't been attended to is that for every $1.25 a US driver spends on gasoline, a US homeowner turns around and spends $1.00 on the heating fuel for their house. So we're all burning fires.
We're burning fossil fuel fires in our basements to heat our homes, whether it's natural gas, which appears clean but has the same carbon profile of most other things, coal, propane, fuel oils. There's over 10 million homes in the US that are not connected to the natural gas grid and are still burning, essentially, gasoline to heat their homes, and that's not great. And in the same way we need to electrify transportation, we need to do this with heat. So that's what Dandelion was founded to do. Geothermal is the most energy efficient and the smartest way to do this.
In a conventional heat pump, you have this big unit outside that you've probably seen, an air conditioning unit, and it blows this hot air to get it outside. Now the problem is that you're trying to cool off the outside part of the unit on the hottest days of the year, and the air that you're blowing over it is itself hot. So you're using hot air to cool off something, it doesn't work that well, and so that's why air conditioners are not as efficient as they could be.
And then running in reverse, it can be very, very cold outside. When it's 22 degrees outside, trying to pull heat in from that outside unit, it doesn't work. So what a geothermal system does is instead of trying to have the outside part be with the air, we drill a 600-foot deep hole in your yard, and it's amazingly narrow, it's a five-and-a-half inch diameter hole, and we bury a loop of pipe in that hole and we grout it in. And then what we do is we run water, actually like an alcohol water mix, through that loop, and that's where we suck heat from in the winter and where we shunt heat to in the summer.
Cody Simms:
The loop part, to me, is the thing that's unique about, I don't know the phrase you want to use, residential geothermal or what, the thing that's not grid scale where you're trying to capture a geyser and shoot steam up a pipe. You're actually a closed-loop system that is running this water mixture through it in order to change the temperature of that water, either taking hot water and turning it cold or taking cold water and turning it warmer.
Dan Yates:
That's right. And the ground below the surface in almost every home in America is in the 50's, it's not even 60 degrees, so this is not hot earth, but 55 degree earth is plenty warm for us to extract heat from in our refrigerant cycle, and it's plenty cool enough to shunt heat to in the summertime.
Cody Simms:
So I understand the general physics that basically cold is the absence of heat, right? Your refrigerator isn't putting cold into the refrigerator, it's actually removing heat from it. Like you said, it's blowing the heat out at your feet somewhere, so it's creating almost like a vacuum of heat in that space. So I inherently understand, in that regard, that if the ground is, call it 55 degrees kind of fairly consistently, and you have a hot house at 80 degrees, and you suck air from the house, run it through this loop underground, get the air closer to 55, you can regulate it and drive your house to 68 or 70 degrees, or whatever you want it to be in the summertime, from an air conditioning perspective. I'm less clear on how you in the winter take what would naturally be a 50 degree home, pull more heat out of it, I don't understand, run it underground and ultimately get the home up to call it 72 or whatever you're going to want it to be in the wintertime.
Dan Yates:
So let's just start with this notion, right, let's say I have 60 degree water, just to pick an easy number, and I want my home to be, let's say I want it to be 70, but right now the outside air is at 40. So I need to get the house 30 degrees hotter than the outside, and I have this water that's not as warm as I want the house to be. If I could take the heat from the water, and the water went from 50 down to 35, then you could acknowledge, well, that might be enough heat to get my house up to 70.
Cody Simms:
Because heat is energy, sure.
Dan Yates:
So how do I get the heat from the water, even though it's cooler than the inside of my house? So how do I get heat out of a 50 degree bucket of water down to 35? So what I do is I pass the cold end of the refrigerant loop through the water, and the refrigerant loop is like zero, it could even be below that, extremely cold, like don't want to touch it cold, and when the water runs over that part of the refrigerant loop, it warms it up. So it goes from zero to 10, let's say. Then the refrigerant loop comes inside where the refrigerant gets compressed, and this is the magic of a refrigerant loop, with relatively little electricity to compress it, the refrigerant goes suddenly up 100 degrees or more in temperature.
Cody Simms:
And this is just refrigeration 101, this isn't specifically a geothermal thing, so this is how refrigeration works, and what you're harnessing is the more consistent temperature of the ground relative to the outside air?
Dan Yates:
That's right. So the big advantage to geothermal is when you're midwinter in Boston or New York City, which are two of our largest current markets, it is 15 degrees outside right now, but the earth is still 55. So exchanging heat with the air today is no bueno, and our system is running at the exact same efficiency that it was five days ago on a warmer day, because the ground temperature doesn't change.
Cody Simms:
Let's talk about where you are today, so you mentioned Boston and New York City. Most of your current deployment is in the US Northeast, is that accurate?
Dan Yates:
So yes, our primary markets are New York, Massachusetts and Connecticut - the company's headquartered in New York - and that's where we do all of what we call our retrofit business, so existing homes where we go into a residential home and we'll upgrade you to geothermal. We also do new construction there. And then more broadly, we'll do new construction jobs in partnership with our developer partners all up and down the eastern seaboard and in the mountain west. And the reason why we started in the northeast is because it's the area of greatest need and opportunity, so it's the highest concentration of homeowners that have heating oil and propane. Now many of our customers, and we have thousands of customers today, are natural gas customers, but the people who have the most compelling value proposition are people switching off of these more expensive fuels. Consequently or relatedly, the states there have the most progressive additional state-level incentives that make it more inexpensive for customers, and it's cold, so people have high heating bills.
Yin Lu:
Hey everyone, I'm Yin, a partner at MCJ Collective, here to take a quick minute to tell you about our MCJ membership community, which was born out of a collective thirst for peer-to-peer learning and doing that goes beyond just listening to the podcast. We started in 2019 and have grown to thousands of members globally. Each week, we're inspired by people who join with different backgrounds and points of view. What we all share is a deep curiosity to learn and a bias to action around ways to accelerate solutions to climate change.
Some awesome initiatives have come out of the community. A number of founding teams have met, several nonprofits have been established, and a bunch of hiring has been done. Many early stage investments have been made, as well as ongoing events and programming, like monthly women in climate meetups, idea jam sessions for early-stage founders, climate book club, art workshops and more. Whether you've been in the climate space for a while or just embarking on your journey, having a community to support you is important. If you want to learn more, head over to mcjcollective.com and click on the members tab at the top. Thanks and enjoy the rest of the show.
Cody Simms:
And is there anything about the features of the ground that matter, in terms of the soil, how rocky it is, how clay packed it is, any of that?
Dan Yates:
Yeah. So I'd say a broader restatement of that question is like can geothermal work anywhere in the US, and the short answer is yes. Unlike the other kind of geothermal where you need a geyser, we just need not a geyser, and that's most every house. It can range from Florida to Seattle to Denver, to anywhere in-between. The geology just dictates primarily the drilling equipment that you use. So we have some work on Long Island. Long Island is a sandbar, and you use a different kind of drilling in sand than we do in most of the areas that we serve. Our primary technology we use is an air hammer, which is a drilling term essentially for a jackhammer. So we mostly drill in rock, and our drill rigs hammer their way through the rock very quickly, like three feet per minute. It's really quite surprising how fast it is.
Cody Simms:
So you in theory could work in the Rocky Mountains, as an example?
Dan Yates:
Yeah, absolutely, anywhere.
Cody Simms:
And is there anything about local permitting that matters, or do you require any kind of special local permit to be able to do this?
Dan Yates:
Yeah. So we have to get permits the same way solar does. So on the one hand, when you talk to, and my friend Lynn Jurich, who was the founder of Sunrun, would tell you that one of the biggest challenges the solar industry faces is permitting, because it's a cost that's incurred for every single home. On the other hand, it hasn't been so big a challenge that it's stopped the growth of solar, so we're in a similar boat. Yeah, we have a permit team, but it's just part of a business.
Cody Simms:
So there's no right to operate or this location doesn't even allow geothermal, it's just a fairly standard permit like digging a well on your property might be, for example?
Dan Yates:
That's actually quite exactly what it is the same.
Cody Simms:
Okay, got it.
Dan Yates:
In almost every jurisdiction, the geothermal drilling is actually called a geothermal well, and it is normally a subset of the requirements. The requirements to dig a well are a little bit more stringent, because you're going to try and get safe, clean drinking water out of it, whereas we're just going to stick a pipe in there and cement it in.
Cody Simms:
Are you typically drilling in the basement or foundation of a home or are you drilling outside the home next to the home?
Dan Yates:
Yeah, so for an existing home we drill outside the home. For new construction, the ideal is to drill two feet from where you're going to put the heat pump, and then you lay the foundation around the well.
Cody Simms:
Great. All right. So let's talk about the heat pump. From the little bit of digging I could do, it seems like the type of heat pump you're using for a geothermal system is different than the heat pumps that are "all the rage today" that everyone's getting installed, which is an air source heat pump. I have one in my home, it's great. Geothermal heat pump, I think, is called a ground source heat pump, so is it actually different technology?
Dan Yates:
I'd say yes and no. So the foundational technology is the same, it's a refrigerant cycle, and in the US, on the inside of the house, the primary mechanism to distribute that heat or cooling is a ducted system, forced air, as we call it. So we blow a fan over the hot coils in our heat pump and it conducts the air to all those vents in your house. That's identical. The difference is everything that we just discussed, which is typical air source heat pump will have a second unit outside the house where the condenser is, and there's a big blower fan, and it's loud, and it exchanges the heat with the air. And in our case, there is no outside unit, because that well is the outside unit, and then the pumps for that well are actually inside the same inside unit, and so it just runs the water over the cold part of the refrigerant cycle inside the unit.
Cody Simms:
In my home, I guess it's the mini split portion of the unit that's actually connected to the duct work is relatively the same thing, it's just that I don't have the part that's outside.
Dan Yates:
That's right. And that actually, I was going to ask you if you had a mini split, because the thing that's happening is - we have really close relationships with many of the regulatory bodies in the Northeast, who have the conclusive data sets on this - almost everybody who's been buying air source heat pumps recently have not been doing what Dandelion helps customers do, which is they haven't been replacing their central heating and cooling. They've been augmenting their house. There's like a playroom that they want to heat, or a glassed in porch that wasn't heated before, or they want to stick one in the garage, and so they're extending their heating system, but they're not replacing it. And we've set out to do that more important, more complicated project of actually converting the house to electric heat all the way to the coldest day of the year.
Cody Simms:
I know when I went to go do my taxes after I did my project, my tax person was like, "Please tell me you got geothermal, because I could write off a whole lot more of your taxes if you did." Unfortunately, I did not, but maybe explain a bit about what's going on with the Inflation reduction Act and some of the geothermal benefits that are in it.
Dan Yates:
Yeah. So this has been a big win for our company and the geothermal industry. We enjoy the investment tax credit, which has been extended for 10 years now by the Inflation Reduction Act. It's a 30% tax credit for homeowners for the full cost of your geothermal system. On top of that, in most states there are additional incentives that can often be worth as much as $10,000 or $12,000, that further reduce what the customer has to pay to retrofit their house or to install geothermal in their new house. So and many of our homeowners have more than 50% of their total bill paid for by tax credits and incentives, and that's enormous, and it's important because it's not cheap to retrofit a fully-ducted house and to modify the duct work and make it work.
Cody Simms:
And when you installed, how often are you having to redo duct work?
Dan Yates:
I don't think it's the majority of the homes, but it's a large minority of the homes that need some duct work modifications. And we're great at doing that, so we don't try to talk the customer out of it, we just want to make sure they're going to have a really great house at the end, but there's typically rooms that will need an additional duct or register or a larger duct, and we carefully go through the house and collect all that information and then give the recommendation. And in most cases, it doesn't require sheet rock work or it doesn't feel like a construction product, it's stuff we can do in the attic and the crawl space or the basement, but it's just slightly expanding the capacity of the home.
Cody Simms:
And so let's dive into then what operations look like for you all, how much of the work I'm about to lay out is done in-house by people who are employees of Dandelion and how much of this is you're working with local contractors and whatnot. So there's the project plan, analyzing a home, deciding if this home is appropriate and what the project would be in the home, there's actually doing the drilling, there's doing the actual heat pump and ducting and insulation and all of the related things around it, and then I guess there's ongoing maintenance of the system as well.
Dan Yates:
Yeah, so we do it all, and you also left out the sales and marketing part of the business, so we have a company with an eclectic set of capabilities. I joke often that nowhere else on earth does one company know how to cost effectively drill to 600 feet one day and design and implement a multi-channel, successful Facebook marketing ad campaign the next day. So we acquire customers largely through digital channels. We have a terrific team of salespeople who sell mostly over Zoom and help the customer design their system, scope out what they need. We send an in-person designer to the house who does the really robust technical analysis, takes all the measurements, and works with the homeowner to give them exactly the right size system and whatever duct modifications, et cetera, and then we go in and we do interior installation and exterior drilling and trenching. Now in most of those steps, there are also some cases where we work with subcontractors, because we'll be extending into a new region and we have a drilling partner or an interior installer, and that, with a great partner, can be terrific, but we do it all.
Cody Simms:
And from a customer demand perspective, how much of your inbound customers are what I would call in the know, like they're searching for I want geothermal, and how many of them are saying, hey, I need to change my HVAC, and they somehow realize there's this thing they'd never heard of before.
Dan Yates:
Yeah. So the customers who are typing in geothermal are our highest intent customers, and we have a higher close rates, and those are great, but that's a small minority of our leads. Customers are searching for furnace replacement, or they're not searching at all. They just see us on Instagram and realize that they could cut their electric bill significantly. One of our best lead generators is the midwinter staggering bill you get from your utility that gets people off the dime and looking for alternatives.
One other thing I meant to add, I actually wanted to come back, we left out in the things that Dandelion does, which is very important, is the heat pump. From day one, we've had our own design and customization of heat pump, working with now two different [inaudible 00:31:48] manufacturers. And we're continuing to evolve that, and the efficiency and capabilities of our heat pumps keep getting better year after year.
Cody Simms:
So the heat pumps themselves are Dandelion heat pumps, is that correct?
Dan Yates:
That's right.
Cody Simms:
You're not just slapping a Mitsubishi system in there or something?
Dan Yates:
Most of the time. So it's a Dandelion heat pump in partnership with our contract manufacturer, Enertech, and it's been tailored to our specifications. And then there are some use cases, some homes, some particular sizes, where we do, we'd never slap a Mitsubishi in there, but we do occasionally work with other providers and heat pumps for corner case solutions.
Cody Simms:
And is the business model purely one of installation sales?
Dan Yates:
Our business model looks a lot like a fully-integrated, first-generation solar company. So because we deliver all of these capabilities, there's margin for us to profit at each part of it. So we make money off of the heat pump, we make money off of the overall sale, and then off of the installation. Now in the long run, I think of as the strategic spine of the business, we're really one of the only scaling and successful direct-to-consumer heating companies. We market direct to customers, and we have a great brand, and we continue to build on that, and then are continuing to develop IP around heat pumps. And probably for the long run, the drilling capabilities are going to be things that we offer, because they're just differentiated and hard to replicate. The interior installation is something that I continue to look forward to working increasingly with subcontractors, because we don't have an edge on HVAC retrofitting and other people do it well too.
Cody Simms:
Is the financing piece something you all participate in too?
Dan Yates:
So we've looked at that, the financing, happily, we have some great financing partners, and they're scaled on account of the success of the solar industry. So we use the same companies, and this is a very similar profile of purchase. Unlike early days in solar where there weren't financing options, financing's quite mature for us, so I think we're going to be happy to work with partners on an ongoing basis.
Cody Simms:
So it sounds like the real sweet spot for you all is being a technology company that has IP around drilling and around the actual heat pump itself, and then being a sales and marketing organization that can find the right customers who maybe don't even know they're looking for this and convert them to being customers of Dandelion?
Dan Yates:
Yeah, and I would say it a little differently, which is being a consumer brand and a national brand that stands for excellent geothermal solutions, owning the IP. And then lastly, which really sits in between those two, is being the design leader on designing successful installations, which looks like in-person designers in the house figuring out exactly what the plan is. And then in the new construction business looks like a sophisticated team of design experts who can build 500-home installation projects and oversee and project manage those and have the supply chain and actually make those things work.
Cody Simms:
And what's adoption look like? I think you announced a milestone sometime fairly recently of your 1,000th installation. Explain a little bit about what it's looking like, where you see things going.
Dan Yates:
I mean, adoption is great. We're well past that milestone now, and we're the largest geothermal installer in the northeast, and it's great signing on new customers just about every day. It's awesome.
Cody Simms:
One thing we didn't touch on, going back to the origin story, is what did it mean for Dandelion to have spun out of Google X, or Alphabet X, or whatever it may be called, I guess?
Dan Yates:
You'd have to ask Kathy for the really detailed answer here, but the long story short is that Alphabet tends to want to own technology companies until they're ready to be operating companies, and Dandelion had a go-to-market plan that had them be operational very early. And so Google identified that the right cap table structure would be to spin it out as standalone and own a fair chunk of it, which is what they did.
Cody Simms:
And then you all announced, a little over a year ago now, a $70 million B1 round of funding. Maybe share a bit about how you are growing and capitalizing the business. Has it mostly been venture capital to date? Are you needing to take on any sort of project-related finance to help with any of the CapEx that you need to build out, et cetera? Maybe share a bit about that.
Dan Yates:
Yeah. So our primary source of funding has been venture capital, and then we do have a lot of equipment, and that equipment we have financed with a secured line of debt with a provider that specializes in equipment financing. And that's not as much money as the venture funds, but it's high-single-digit, low-digit, millions of equipment that we've had the opportunity to finance, and that's been very valuable to have that as a tool in our cash tool belt.
Cody Simms:
And what's next, Dan?
Dan Yates:
I mean, more of the same. We have three areas of value at Dandelion. It's the initial direct-to-consumer residential business, home by home vertically integrated, that's the first leg of the platform. The second is new construction, which really we started a year and a half ago, and are the fastest growing part of the business right now and is just going great. And we have very happy developer partners that we've been growing the business with. And then the third is the continued development of the IP around the heat pump. So I'm excited to grow all three of those.
The way the retrofit business is going to grow is incrementally, region by region, as we continue to scale within region and then launch new geos. New construction is a little less geographically tethered, because we can lean more heavily on installation partners who can come over from the commercial side of the business. And then to date, our heat pump has been something that only we've consumed, but it's something that we're exploring potentially opening up as we continue to mature that offering. And we're investing in all three, and I think we'll see the future will hold what the mix will be over time, but they're all promising.
Cody Simms:
And what have been the biggest barriers for growth? Is it adoption purely? Is it that these are fairly expensive systems? I guess we didn't even get into the cost of them from an average homeowner perspective, but I'm just curious what the things that you have to overcome are?
Dan Yates:
I would say the hardest thing is that it's just a lot of stuff. So it's an operationally complex business, and you have to have everything tuned to make money. So my background has been in starting software companies, and the equation in software is pretty simple. It's like sell product, get money, make money. Here, you can have a lot of turnover, which is the European term for revenue, and I really like it in this sense. You can have a lot of turnover, you can turn over a lot of money, and you cannot keep a lot for yourself unless you have your business running smoothly. So that's been where a lot of work has come and where a lot of our differentiation is, is that we're making money off of these projects. And then that also is something we are constantly keeping an eye on as we invest to grow and invest in the trade-offs between growth costs money and how much money are you reaping from your more mature location. So that's a big piece of it.
The demand is there. One thing we really got right is the regulatory trend is going exactly the way we thought. Every year, new states add more incentives, no one's backing off, and people are getting more and more clear-eyed that we have to move all of these natural gas homes to heat pumps. And our job at Dandelion is to make a disproportionate number of those heat pumps geothermal heat pumps.
Cody Simms:
You mentioned most heat pumps that are getting installed today are not whole home systems, they're sort of extending a home, whereas you are going in and truly retrofitting the whole home. Can you give us a sense of a typical project cost breakdown for a homeowner?
Dan Yates:
Yeah. So I mean, a typical homeowner will, after incentives, pay something like $25,000 per heat pump, and the average home does one heat pump, and then the second most common home is two heat pumps. And then we have a long tail of 3, 4, 6 heat pump mega mansions, et cetera, but almost everybody's in a one or two heat pump house. And then most of our customers finance. So while those are like the after tax costs, the experience of those costs to the customer is that they're paying a monthly bill that's a couple hundred bucks, and that bill most of the time is less than what they were paying for their heating oil or their gas bill before they put in the system. So for a lot of customers, it's a day-one savings. That's why there's demand.
Cody Simms:
Yeah, that's great. Well, Dan, what else did I not ask that we should have made sure to cover?
Dan Yates:
I think you hit on most of it. This has been a lot of fun. I don't think you missed much.
Cody Simms:
Where do you need help?
Dan Yates:
Two places. I'm always looking for great people to join us, so please check out our job postings. I can tell you we're looking for a project manager, some salespeople, some installers.
Cody Simms:
Sounds like everything from technical jobs to trades jobs to sales and marketing, right?
Dan Yates:
Yeah, we're always hiring. And then I think the second thing is just continuing to spread the word, more people understanding what geothermal is and knowing that it's an option. That's where we've benefited from partnering. And what's great about this industry, because it's a new industry, is it feels like a community, so working together to get that word out and getting more customers to know to want geothermal.
Cody Simms:
Well, Dan, I super appreciate you joining us, and thanks for taking the time. Thanks for coming back onto My Climate Journey, and great to hear the update on what you're doing now and the update on Dandelion.
Dan Yates:
Awesome. Thanks, Cody. It was super fun to be here. Appreciate it.
Cody Simms:
Thanks again for joining us on the My Climate Journey podcast.
Jason Jacobs:
At MCJ Collective, we're all about powering collective innovation for climate solutions by breaking down silos and unleashing problem solving capacity. If you'd like to learn more about MCJ Collective, visit us at mcjcollective.com. And if you have a guest suggestion, let us know that via Twitter at mcjpod.
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Cody Simms:
Thanks and see you next episode.