Startup Series: Designing the Future of Home Energy with Haven

Aug 29

Jeff Chapin is the Co-founder and Chief Product Officer at Haven Energy. Haven aims to make it easier for homeowners to install home battery systems, including choosing the right battery, permitting and installation, tax credits, and virtual power plant setup. Haven recently began offering bundled installation of solar and batteries. Jeff has seen scale before as he and his co-founder, Philip Krim, previously co-founded and grew the one-time darling, direct-to-consumer mattress company, Casper. Jeff has a long-time background in design at IDEO and credits this experience with training him for the context switching that's allowed him to move across very different industries, sectors, and technologies.

In this episode, we talk about consumer demand for batteries, how Haven works, the wonky and esoteric net metering regulations in California where Haven is prioritizing their go-to-market, and why Haven added solar to their offering recently.

Episode recorded on Jul 23, 2024 (Published on Aug 29, 2024)

In this episode, we cover:

[02:08]: Jeff's design-driven journey from IDEO to Casper
[06:18]: Applying design thinking to home energy
[08:45]: Retrofitting batteries to existing solar systems
[11:30]: Challenges in the battery installation market
[15:28]: Customizing battery options and customer incentives
[21:35]: Installation process and energy management
[26:03]: Financial benefits and tax credits
[28:15]: Changes in net metering for rooftop solar
[34:46]: Growing demand for solar and battery setups
[41:06]: Series A funding and growth strategy for Haven

Cody Simms (00:00):
Today on MCJ Startup Series, our guest is Jeff Chapin, Co-Founder and Chief Product Officer at Haven Energy. Haven aims to make it easier for homeowners to install home battery systems, including choosing the right battery, permitting and installation, tax credits, and virtual power plant setup. Haven recently began offering bundled installation of solar and batteries. Jeff has seen scale before as he and his co-founder, Philip Krim, previously co-founded and grew the one-time darling, direct-to-consumer mattress company, Casper. Jeff has a long-time background in design at IDEO and credits this experience with training him for the context switching that's allowed him to move across very different industries, sectors, and technologies.
(00:49):
In this episode, we talk about consumer demand for batteries, how Haven works, the wonky and esoteric net metering regulations in California where Haven is prioritizing their go-to-market, and why Haven added solar to their offering recently. But before we start, I'm Cody Simms.
Yin Lu (01:07):
I'm Yin Liu.
Jason Jacobs (01:10):
And I'm Jason Jacobs and welcome to My Climate Journey.
Yin Lu (01:16):
This show is a growing body of knowledge focused on climate change and potential solutions.
Cody Simms (01:21):
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.
(01:34):
Jeff, welcome to the show.
Jeff Chapin (01:36):
Cody, thanks for having me.
Cody Simms (01:37):
We have a lot to talk about today. There's so much going on when it comes to battery storage and backing up your home and how rooftop solar economics are changing and shifting that I'm really excited to learn from you and understand from what you all are building at Haven Energy. As is, I think, obligatory probably in a conversation with you, I really have to understand how you went from building a mattress company to building a home energy battery company. So maybe walk us through your journey and your path here.
Jeff Chapin (02:08):
In college, I studied engineering, civil engineering and geology. I went and started a PhD program in geology, then left before I got the PhD because I had become friends with some folks at the Stanford product design program and I was like, "Man, that seems way more exciting than studying small scale fractures in sandstone." So I ended up going back and getting a master's degree in product design from Stanford, and then went and worked at IDEO for a decade, which is a big global design consulting firm.
(02:41):
To get to your question, my time at IDEO, if you're familiar with the firm, you work on every industry under the sun, projects are six to 12 weeks long and the founder of the company, David Kelly, who was also a mentor and head of the program at Stanford, his point was you don't become an expert in any one thing, you become an expert in a process so you know how to ask the right questions, you know how to learn quickly and you can bring in experts who do know, who have spent a career focused on one thing.
(03:11):
So I spent 10 years at IDEO working dozens and dozens of industries and products and so it's very natural for me. I did some work in international development for a while, just doing mattresses in doing this because it's process based, not subject matter based. So I've spent the better part of two and a half years now just deep diving into home electrification and batteries and solar. In the process, I learned over the last 20 years and applied it to this industry.
Cody Simms (03:40):
I have to imagine all that training in design-based thinking and a design approach to product really does help you be nimble and work across different industries. You had a long chapter at Casper. Can you maybe just shed a little bit of light on what you learned in that company and anything that you now have taken away from that approach? Casper, I think, is a brand that everyone listening to this pod has heard of, and if you haven't, really the original direct-to-consumer, direct product order mattress company, which I think when it first came out, it was like mattresses are a venture backable business. What? I don't understand. Walk us a little bit through that journey and any takeaways you've had from that as you've moved into clean energy in the home electrification space.
Jeff Chapin (04:21):
There were both positive lessons and some negative lessons from the Casper experience that carry over to this current business. We were very aggressive at Casper, jumps of expansion. We started as a direct consumer e-commerce business, but very quickly, we opened stores and we opened wholesale accounts and [inaudible 00:04:41] stores. We're just getting into that in Haven. That helped a lot in that space for us to just be omnipresent. We did an exceptionally good job at hiring in the beginning of that business. The brand grew quickly and allowed us to attract talent.
(04:56):
I learned if you want to scale quickly, you have to rely heavily on the people you hire. So we've tried to replicate that here. Casper, we raised a huge amount of venture capital, I think over $400 million of venture capital in a year. Mattresses can be and were a venture backed business. They shouldn't have been a $400 million venture backed business. Total addressable market is not large enough. So we're trying to be much more cash disciplined here, which is balanced against the expansion. So we're driving towards cash flow positive middle of next year, which would be great.
(05:29):
Casper is now over 10 years old. There were moments there where it was cash flow positive. I'm obviously no longer involved in that business, but my understanding is that it still is not there. One of the big problems with the Casper business was around competition. So we were fairly early into the space. There was not much of a hurdle for other companies to come in the space that were contract manufacturers.
(05:51):
When we started, it was much harder to set up an e-commerce website, but within two or three years, Shopify and all these came on, so we ended up with a huge amount of competition, not a very defensible business, and so as we build this business, it's an immensely more complex space to operate in, but building out defensibility is paramount for us. As we think about software, we're building the support, the infrastructure, and the knowledge that required to do what we're doing is harder to attain.
Cody Simms (06:18):
At face value, you could say, "Hey, mattresses," you can kind of win on a superior product, but at the end of the day it's a sales and marketing business and you got to be great at sales and marketing. We haven't even introduced what you do with Haven Energy yet, but as I understand it, you all aren't actually making the batteries. So from your perspective, it's fine if the battery space becomes commodified underneath you. You have to be better at service and customer interfacing would be my guess. Before you answer that, maybe quickly introduce what the company does and then we can get into how you're thinking about your competitive advantage in the space.
Jeff Chapin (06:54):
We launched Haven about a year and a half ago into the public. For the first 12 months of the business, we primarily focused on, I would say, our product was a service. So we were selling primarily battery refits to existing rooftop solar systems in the residential space. Now, we can dig into it later, but there's numerous reasons why somebody might want to add a battery to an existing rooftop solar, so getting resilience. If you have solar and the grid goes out, the solar shuts down. So a battery allows you to essentially go off grid, and with some probably reduction in your household consumption, you could stay powered for the full duration of the outage.
(07:34):
There are some significant cost savings benefits, particularly in California, which is our primary market. They have time of use rate plans with fairly large spreads between peak usage and off peak usage. So if you're exporting your solar at 1:00 PM when the sun's peaking under like a NEM 1 or NEM 2 plan, you might get 20 cents a kilowatt/hour. If you hold onto that and export it at 7:00 PM, you might get in SoCal Edison, you might get 60 plus cents a kilowatt/hours worth of credit. So you can play an arbitrage game and it saves you money. The reason electricity is expensive there is the grid is struggling to produce it and so you're actually supporting the grid in this weird great arbitrage sense.
(08:19):
We started our business there, and batteries are fairly complex to retrofit to an existing home. I've learned that it's a much more complex than adding solar to a home, particularly in terms of how we're interfacing with the existing electrical panel. That's where all of our focus was. We sold through direct acquisition primarily just direct mail and then we have some partners that sell through us and we do the installation and fulfillment.
(08:45):
For the first six or nine months, 95% of our business was what I just described, retrofitting batteries in it, small cases. Somebody might just get a battery. They might live in a townhouse or an apartment and they can't have solar, but they can still benefit the same two reasons I described before from a battery. The first quarter of this year, the number of inbound customers asking for solar plus battery started to take up significantly, and so just recently, we've taken everything we learned about batteries and have rolled out a solar and battery offer that's been pretty successful. So we continue to do battery retrofits. We also sell net new systems. We do both. We don't do PV only. We would just do a PV plus battery install.
Cody Simms (09:30):
But just to be super clear, the batteries that you're installing are not Haven batteries. You're not a battery manufacturer. You're installing a Tesla Powerwall or an Enphase or whatever onto someone's home.
Jeff Chapin (09:41):
Yeah. We install batteries from four different manufacturers. We think they pretty much already are commoditized, certainly from what a homeowner would care about. We looked at the space. We just don't think there's all that much to differentiate on in the battery space, so we do anticipate that costs will come down. We also wanted to maintain some fluidity on battery chemistry. So currently, all home batteries are LFP for the most part, which come out of the EV industry. The requirements for a stationary battery sitting in your garage or outside of your garage are very different than EV. So there will be better chemistries coming down the pipeline and we just want to retain that flexibility going forward.
Cody Simms (10:23):
Do you expect those to be more like sodium ion type of chemistries in the future or to be determined?
Jeff Chapin (10:28):
I'm no battery chemistry expert, but I would say something in the flow batteries or a sodium ion battery. That said, those companies that are developing, those are all focused on commercial scale, utility scale, so it'll take a while for somebody to invest the time in residential scale batteries. It's nothing imminent, but it will happen. You don't need all the benefits of a lithium battery for a stationary application.
Cody Simms (10:54):
There's a few different directions we could go. Obviously, I want to cover each of these. I want to cover what is the process of going through the installation with Haven. I want to talk about why did you decide to do solar plus batteries. I want to understand NEM 3.0 and all the really wonky California stuff related to rooftop solar. I think we do need to cover that. In a world where Haven doesn't exist, how does a typical homeowner retrofit their home today with a battery? What's the process look like? Where are their pain points that you all identified? And given that was your initial go-to-market entry wedge, clearly you saw something there that was lacking.
Jeff Chapin (11:30):
When we started the business, for the most part it wasn't possible to do it. Existing solar installers would turn down the business. It wasn't an offering in the market. There was so much money being made on the solar install side that an installer wouldn't, and as I mentioned, there's complexity to the battery install that it just wasn't offering. In the intervening time, there are some other companies that have come to the space. They'll offer a battery retrofit, but it wasn't an available option at the time and that was the opening we stepped into.
Cody Simms (12:00):
And the complexity is on the electrical work that needs to get done, it's on the permitting side, it's on the procurement of the battery side? Where do these complexities lie?
Jeff Chapin (12:10):
Not so much on the procurement because there are large national distributors that will carry batteries. It's on the system engineering or system design. So once you assess what the electrical setup of the home is, what can you actually do according to code and safety regulations? If you take a step back before that, on the sales side, you have to have a conversation with the homeowner about what they want, if you're doing a backup implantation, what they want to back up. And that sounds like it should be easy, but people, they don't necessarily speak in kilowatts and amps and breakers. Panel is a scary thing, and so you have to help them navigate, "This is possible, but this is not possible. If you want to do that, you might have to add an extra battery. We can add smart controls to it, and all those things have costs associated with them." So you have to help the homeowner navigate that.
(13:05):
The solar industries driven by sales folks that also don't fully understand batteries, so trying to put tools in their hands so that they can have rules built into them. They can't mix and match things that can't be mixed and matched. So that's where we've spent effort on the software side is building tools that help in the specification of what could be successfully installed in functional systems.
Cody Simms (13:30):
I'm going to take my own use case because I live in southern California. I have rooftop solar. I do not have a battery. Prior to knowing Haven existed, I probably would've done one of two things. I would've either called my existing solar installer who, by the way, talked me out of doing a battery when he installed my solar panels and say, "Hey, I'd like to consider a battery now. Can you give me a quote?" or I'd probably just call Tesla and say, "Hey, can I get a Powerwall put in here? What do I need to do?" Tell me why either of those are not viable options.
Jeff Chapin (14:02):
On the first one, your existing solar installer, I mean, that's what we stepped into. Most solar installers, particularly pre-net billing tariff, which is the new tariff in California, they really discourage homeowners from getting batteries. I've heard multiple reasons as to why. One, it's complex. It adds difficulty in both the design and in the permitting. So the permitting for solars can be fairly streamlined. In California, there's now an app-based way to permit, but permitting for batteries is much more complex.
(14:31):
The odd thing is it's way harder to permit a battery-only than a solar plus battery. Just like there wasn't really somebody serving the market, the permitting authorities just weren't seeing many of those projects come through. One of the people on our sales team's been in the industry a long time. He said he would always discourage selling batteries previously. So say you sell a job, $20,000 a solar, $15,000 a battery, $35,000 job, maybe two or three years ago when you were buying your system. That permit would be submitted and there are, he called them Permit Hawks. There are people that sit there and wait for the public database of permits to come out and then they'll go knock on your door and say, "Hey, I saw you are just permitted to buy a $35,000 system. That's crazy. Why don't you just do $20,000 of solar? I'll go to Home Depot and buy you a generator for the rare case that you need to have backup power," and they would try to steal that job away from the person.
(15:28):
There's some very aggressive sales tactics in the industry, and so you just didn't want to lose your job because you invested a lot of time in it and so you would try to talk people out of batteries. On the Tesla side, it's interesting. When we launched, they did not have a battery only frame. You could not buy a Powerwall directly from Tesla. Now they do. I know the direct-to-consumer business is not a huge priority from my understanding. That would be an option. They would pass you down to a third party installer. That is one of the pieces of competition. It's a bit funny for us because they're a partner to us but also a competitor in that space.
Cody Simms (16:02):
As I understand it, one of your value props is you're going to help the homeowner understand if that particular battery, the Powerwall is the right one for their home or if they should use one of these other two currently providers that you all have or three providers that you may have, and in the future maybe more than that, I would guess.
Jeff Chapin (16:17):
It gets down to what does that world service we offer. We take people through a process where we understand what their needs are, we understand what their home setup is, we come back to them and have discussions, what makes the most sense. It could be a Tesla battery, it could be a Franklin battery, it could be an Enphase battery, it could be a Lunar battery. There's other options that are out there that may serve their needs better, and so we're fairly agnostic as to the piece of hardware that we install.
Cody Simms (16:44):
You've said a few times the use case that the homeowner has. I can think of two that are quite different, and I'm guessing people don't realize that these are very different things, but one would be backup. I want to make sure I always have a charged battery. If the power goes out, my refrigerator isn't going to conk out or, "Oh, I just got a heat pump HVAC and I want to make sure I got air conditioning in the summer and I don't want it to conk out when the power's out."
(17:06):
And then the other would be, a consumer probably would never say this word, but load shifting in terms of, like you said, arbitraging the price per kilowatt/hour on a daily basis to earn the most potential from your own home energy usage and potentially home energy production if you have solar. I guess there's maybe a third, which is, "I'm buying an EV and I know I'm going to have huge load when I charge at night and I want to optimize around that," which is kind of a subset of that load gen. Are there other big use cases that people come to you with?
Jeff Chapin (17:36):
It generally captured the two bigger buckets. I think you get into the nuance, and if somebody wants back up, it's a discussion of why do they want back up and what are they trying to protect from it. Do they work from home and keeping just basic essentials like Wi-Fi and lights and plugs running? Do they have some medical condition where they need a CPAP machine to run at night? We had one person who bought a battery system to back up their hot tub because that was very important to them. Nothing else on the home, just that. We have a homeowner who ... There's unique use cases. He wanted to do some arbitrage with a gas generator.
(18:15):
I'm always surprised at what comes in terms what people want. Backup is there's many flavors of what you want to do. We had one person who we talked to and then he wasn't interested and then he came back to us a couple of months later because he had a public safety power shutoff events, which are these elected utility shutoffs in California. He had eight in a week and he's like, "This is untenable. I can't live like this," and that triggered him. So those tend to be short one to two hours. That's very different than somebody who might be more remote, might be concerned about a multi-day outage and would want to invest in a larger battery bank.
(18:48):
On the arbitrage, there's two flavors. One is most people who have purchased solar reduced their electricity bills. They know that batteries are generally in the same categories that they're like, "Hey, can you save me even more money?" And it's the case for many homes, not for all homes, so we'll evaluate that for the homeowner. The other one which is I think a bit more emotional is just self-consumption. If I add a battery to my solar, I don't have to exchange as many electrons with the electric grid. So there's this anti-utility, "I just want to be more islanded." Even though you're not really islanded, you're not truly off grid, you just want to be more self-sufficient, more self-consumption, feel like you're getting more out of your solar system you've invested in. So I think that's like a third motivation.
(19:33):
The one I thought would be stronger but we almost never see is an environmental motivation. There is a carbon reduction even after you account for all the embodied carbon in a battery system. That generally is canceled after about a year, year and a half. So you've got the rest of the lifetime of the battery where it's carbon positive, but we don't see that as a big motivation. We do see a small number of customers just generally interested in the whole home electrification, which, obviously, carbon reduction is part of that.
(20:03):
You've got the five or six appliances in your home and where does a battery fit in there? Where does solar fit in there? Where does a smart panel fit in there, EV chargers? We don't do heat pumps and de-pump our water heaters, but we'll do smart panels if there makes sense and the homeowner wants them. We will do EV chargers as part of the projects.
Yin Lu (20:23):
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.
(20:48):
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 (21:22):
From here, let's maybe talk then a bit about what the actual installation process looks like. So if a customer comes to you to Haven Energy to your website, fills some stuff out, what happens? Where do they go?
Jeff Chapin (21:35):
So we have a team of energy advisors that understand batteries pretty well. They'll take people through an initial consultation sales process where we understand what the homeowner's trying to achieve. We share some costs with them. This is the difference between us and a lot of companies in space. We ask for a refundable deposit which is like, "All right. There's some intent from the homeowner here," and then we initiate a site survey. So we send an installer. One of our installers electricians out to the home site. This is one of the learnings. There are many things that a homeowner could capture for us. Unlike solar where, actually, the solar design tools right now because you just have this high res aerial imagery and LIDAR and you can design a PV system without a site visit, batteries, you need to see the side of the house, which we can't get.
(22:22):
We need to see the electrical panel with the dead fronts off and all the sub panels and where everything's located. So we capture all that. Then we go back and do a system engineering. So we have some PV and battery system designers, say, go back. And if what was initially promised is not possible, we'll go back to the homeowner and say, "Hey, this is what we learned from the site visit. This is what we can do for your home," or, "Here's three options." And at that point, the homeowner would decide to proceed with one of the paths and then we would enter into contract, submit for permitting.
(22:54):
Once a permit's issued, we do the installation and then do interconnection if interconnection's required, inspection interconnection. For homeowners that are interested, we can and will enroll batteries in virtual power plants if there's a relevant one for that user. That engages a longer term relationship, obviously, because those are in California right now the primary VPP to enroll in is this DSGS program, demand side grid support, and that's a summer seasonal program that pays out once a year.
Cody Simms (23:27):
I'm an LADWP and I got my email from them about that just the other day. Are you managing something for the homeowner in that regard in an ongoing way? Are you actually managing when to charge and discharge the battery relative to pricing on the grid or is the utility's own software package taking over at that point?
Jeff Chapin (23:47):
Yeah. It's something we manage. That specific program, they publish data, head pricing, signals, and then there's something that needs to happen. So I would know today that there is some discharge ask for tomorrow. The homeowner doesn't have to do anything. It's all controlled through software. If the program was 6:00 to 8:00 PM tomorrow night, you would make sure the battery's charged by 6:00 PM and then you would discharge most likely at max rate. You're discharging, so the homeowner has a backup use. They need to be aware of it. Something like a time of use [inaudible 00:24:20] you get double dipping there. You're doing both at the same time. There's just essentially an accounting at the end of the season where you report back to the state what you did. It's a very chunky program. One's reporting a year and one payout once per year. So it's not like a continuous revenue stream for anybody.
Cody Simms (24:41):
I think the one I'm in is 125 bucks or something. You get a Visa check card in the mail or something if I remember correctly. And then from a pricing perspective, you're basically charging the homeowner for the actual hardware and the installation and all the things they're in. Is there an ongoing charge to work with you then as well?
Jeff Chapin (25:01):
No. Luckily, solar and battery are pretty low maintenance because they're mostly static things. We have budgeted in some expected O&M costs at the original price, but we don't have a recurring fee that we're charging homeowners, but yeah, we make in hardware permitting, system design installation. All that comes through us. We do have for battery-only customers, we launched ESA, energy services agreement. So that's essentially, if you're familiar with a lease or a PPA, it's a version of that for batteries. In that case, there is recurring payments. We've essentially eliminated the upfront payment in exchange for a monthly payment, and we are the asset owner, so Inflation Reduction Act, their tax credits for commercial owners. So we're able to reduce the cost of the system pretty significantly upfront. We can claim the tax credits.
Cody Simms (25:56):
You can get a bigger tax credit on a per homeowner basis than they could get if they were just applying as themselves. Is that what I'm hearing you say?
Jeff Chapin (26:03):
If you're a residential homeowner claiming a tax credit, it's a 30% tax credit. If you're a business that claims a tax credit, there's a 30% and then they have all these adders. So if the battery or solar is deployed in an energy community, it's a 10% adder. If it's domestic content, it's a 10% adder. If the customer is low income or is a low income area, you can get all the way up to a 70% tax credit, and it's only available to a homeowner through in the industry they call third party ownership, through a lease or a power purchase agreement or ESA like we've set up. It just helps lower the upfront cost of ownership for people who are willing to do more of a rental model.
Cody Simms (26:42):
And I have in my head that these systems book value are going to run anywhere from probably a bit over 10 grand to 20 grand or more. Obviously, you can keep going up from there if you're adding five, 10 batteries to your house, but for a typical home. And then all these tax credits may reduce your overall cost. Call it somewhere in the 30 to 50% range all in. Am I ballparking correctly here roughly what these projects are going to cost a homeowner?
Jeff Chapin (27:10):
Yeah, it's roughly right. I think the lowest cost thing we'd ever install would be like a small base battery and what they call self-consumption. So there's no backup, it's just a bill savings. I forget exactly, but it's six or $7,000 for a single battery. And then if you're in the Powerwall scale batteries, you're in the 13 to 15 for a single battery. It doesn't double. It might be 15 for one and 23 or something for two. There's some components that you don't have to replicate. There's obviously permitting costs you don't have to replicate. The ROI, for people who are looking for ROI, is better in the two to three battery size.
Cody Simms (27:48):
You've obviously initially gone to market here in California, and I think in large part, that was inspired by all of this new net metering legislation that's come about. Can you walk us through the changes there for California homeowners, both who have existing rooftop solar installations but no battery, as well as anyone who's looking to install a system from now forward?
Jeff Chapin (28:15):
On the highest level, they call net billing, which is essentially when your rooftop solar is producing electricity, that's obviously peaks in the middle of the day for like a five to seven hour window, but obviously, you consume electricity 24 hours a day and your consumption is not going to perfectly match that peak. So on the highest level, it's a conversation of what happens to that extra. You might consume say 30 kilowatt/hours electricity in a day and you might produce 30, but that 30 is just in that tiny window.
(28:47):
So historically in California, net energy metering 1, so NEM 1 or net energy metering 2, NEM 2, which is what adds for the last 20 years, you essentially got full credit. For any kilowatt/hour that you sent to the grid at noon and then you took back at 8:00 PM, you got between 97 cents and a dollar of credit for every unit that you sent out, essentially. So it was one for one. Essentially, you're using the electric grid as your big storage bank. You send it out, you buy it back, there's no penalty.
Cody Simms (29:22):
And the utility was arguing, "Hey, in the evening, it's more expensive for us to produce power," but you're still getting it at the rate at which you produced it via your solar panels in the mid-afternoon. That was the utility argument for this, is that right?
Jeff Chapin (29:35):
Yeah. Well, so what was happening is there's so much solar in California that on some days of the year, there's too much solar being produced in the middle of the day and so they have to curtail. And then what happens, solar starts to wane at 4:00 or 5:00 PM, people come home from work, and so you actually have this time where none of the generators are running, all of your gas generators and stuff. And then at 5:00 PM, there's this huge delta from what does the grid have to supply to that 4:00 PM to 6:00 PM. You've heard of the solar duck curve. That's that big ramp up, and that's difficult for the grid to do.
(30:14):
So in April this past year, they changed to NEM 3.0, where they called it net billing tariff. There's different names for it. And what they said is, "Hey, we're no longer going to give you full credit for the export electricity. We're going to give you about 20 to 25% credit." Say you used to get 30 cents a kilowatt/hour, now you get six to eight. It varies dramatically. They've mapped out the whole year every day by the hour what you're going to get for export credit, but roughly like six to eight cents a kilowatt/hour. It really changed the economics of rooftop solar. Everybody who had previously bought solars grandfathered in for 20 years from their date of connections, you don't have to worry about it.
Cody Simms (30:54):
I emailed my installer as soon as I saw this and I was like, "What do I need to do?" and he's like, "You're okay. You don't need to do anything for now, but if you were buying from me today, I would give you a very different story."
Jeff Chapin (31:04):
So there was a huge rush in the industry. Anybody who got a job, I think, submitted for permitting or interconnection by April 2024 was on the old billing. The industry just was like a huge surge, and then there was the reckoning afterwards, which is you see happening in the solar industry today is sales dropped off a cliff because, one, the economics aren't as good for homeowners, so fewer people would be interested. And two, the industry spent six to 12 months accelerating sales, telling people, "Don't wait, don't wait, don't wait." So they brought forward a huge amount of demand and then there's this huge trough and now it's slowly starting to recover because what entailed is now in net billing, you really need to add a battery to get max value, and the system costs go up because you have solar plus a battery instead of just solar. I firmly believe the economics for a homeowner are still amazing. We see six to eight year paybacks on something that has a 25-year life. That's a great economic decision.
Cody Simms (32:05):
It's hard to find those IRRs in just about anywhere if you actually did the math on it.
Jeff Chapin (32:09):
The thing is it used to be like four years. My complaint about the solar industry is nationwide, solar only has 3% penetration or something. I was like, "Man, with low interest rate, amazing rate plans and net billing, how did the industry not do better?" It should have really gotten to higher penetration in the time it had.
Cody Simms (32:31):
I have one more selfish question on net metering, which I don't know if you know the answer. If I sold my home, does the new homeowner inherit my grandfathered program or did they move to NEM 3.0 immediately because they're a new account?
Jeff Chapin (32:44):
My understanding is they inherit the program. The only thing that you could do that would kick you out is, and this is up for debate within, I think, the California Energy Commission right now is if you are the PUC. If you wanted to add more solar panels, right now I think you're limited to 10 of that. So if you've got, whatever, 20 panels on your roof, you could add two. That's never going to be worth doing because of the cost to mobilize to do that. And it's a problem because as people add a heat pump or get an EV, they need to add more, need that six or eight or 10, but they would get kicked into this net billing tariffs. So people are choosing not to do it and that's kind of unfortunate.
Cody Simms (33:27):
Makes sense. My next step would be a battery, anyway, so somewhat irrelevant, but I had to know for my own selfish reasons. So now, people are incentivized to either retrofit their existing solar with a battery, though a little bit less so begin because of this grandfathered process, but if you're going to expand on your home or you want to add more solar, you need to then include the battery. But as you said, really what it's doing is it's driving more solar plus battery packaged installations in order to shift that load from all this that's produced during the middle of the day that that own home can then consume its own electrons later in the day as opposed to having to pull them from the grid. I suppose that's the real incentive here. Is that correct?
Jeff Chapin (34:09):
In the new net billing tariff, the battery's letting you avoid exporting to the grid where you would get these really minuscule credit value. So you hold onto it, you use it locally, so you avoid this exchange with the electricity grid. So the economics are much improved and then, obviously, with the battery there, you're getting backup and resilience.
Cody Simms (34:30):
You said recently now, you've just started to turn on solar plus battery packaging. Are you seeing there being more demand for the packaged product than pure retrofits or how are you seeing that trend play out for you all?
Jeff Chapin (34:46):
Just in the state, I think for every single battery retrofit sold in the state of California, there's 10 solar plus batteries. So if you open up to the market, we might be slightly more weighted towards battery-only, but over time, solar plus battery will take over. Obviously, we control our own marketing and the messaging and how we target. So GIS model, which allows us has 12 or 15 layers of information. So we could target somebody that we think would buy solar plus battery or somebody that would just buy a battery. We mix and match how we spend there. We do have some sales organizations that we support as an installer. They predominantly sell solar plus battery.
Cody Simms (35:26):
Now, we talked about when you first launched, there weren't a whole lot of just pure battery retrofit companies. Tesla eventually kind of added that model in through contractors. To some extent, you're both partnering them and competing with them, but now with solar plus battery, you're going head to head with the Sunruns of the world, I'm guessing. Is that accurate?
Jeff Chapin (35:44):
One could argue it's like slightly a red ocean strategy if you read the business text, but I would say there's a couple things. One, industry has a terrible reputation, terrible reputation on the solar sales side, a not much better reputation on the installation side in terms of installers, ghosting their customers, they get paid, they don't come finish the job, they did it poorly, you get a roof leak, installers going out of business. It's a very maligned industry, much of its own doing. It's a red ocean in many ways.
(36:18):
And if you look at particularly the large publicly traded companies in this space, most notably recently Sunpower, I mean, they're really struggling because of decades of these issues stacking up. And so we do think there's an opportunity for ... And this is very different I think to the earlier discussion around Casper where we were scale at break next speed. Here, we could break our business if we scale too quickly.
(36:42):
For the first quarter of this year, we just held sales steady so we could put in place more robust operation processes because we could start to see the system cracking in terms of the customer service we were providing. So now, we're in a much better place. So we're back to scaling again, but I think it's a huge check 20, 25, $30,000, something you're going to have on your house for 25 years. It is not just cost driven. Reviews are hugely important. We don't have that many because we're a new company, but we have all five-star reviews. We have a phenomenal net promoter score, and that's hugely important for us.
(37:16):
We do have a product and tech team and we're building tools that help keep our sales organization and homeowners up-to-date. It seems so basic. Your homeowner getting good communication from any trade that's working on your house, including us, is invaluable. You pay a premium for it. So that's where we're banking on differentiation is having very good pricing, but having exceptional customer service, exceptional support, actually design and install system that works as we say it's going to work. That's where we're trying to differentiate on the installation side.
Cody Simms (37:52):
Are your electricians and your installers employees of Haven or do you work with contractors and take them through a training regimen? What does that look like?
Jeff Chapin (38:02):
Yes, a little bit mixed. We have some electricians and now some out. They're all required to be certified. We take them through training. We do quality control and all the jobs. We do the system engineering, we do a debrief, we do a QC afterwards. One advantage of solar and battery is we can see instantly if it's working. A good example for me would be like a heat pump retrofit. Maybe not in LA where you are, but other parts of the country, humidity and condensation is a big problem. You might not see that. It might take years for that to develop. In a battery and solar, you see very quickly if it's working or not working. Some things you can fix while the installer is still on site or when they go back for inspection. That will continue to be a strategy for us. To scale, you generally need to require subcontractors just to move into new geographies quickly. That balance is something we'll work on over time.
Cody Simms (38:53):
And from a financing perspective, I guess you're relatively asset light, though to some extent, you might have to buy the hardware upfront right before a job goes in when you haven't fully received the payment from the customer. Early on, some installation companies were having issues where they were having to front some of the tax benefits upfront and have to wait on a payment from the government. I don't know if all that's been sorted out, but I'm guessing there's some cash flow stuff to figure out here and there, but for the most part, you're a relatively asset light company. Would that be an accurate way to understand your business?
Jeff Chapin (39:26):
Yeah, intentionally. We don't hold inventory. We drop ship from a distributor to a home site the day before the install happens or the morning of. We get invoiced from them, net 30 or if we can get better terms from different distributors. In California at least, you can't invoice homeowners for the bulk of a project until materials drop. So there is a tiny gap there, but essentially, our cash flow out matches our cash flow in pretty closely.
(39:55):
Your comment on rebates and incentives, that gets complex, particularly on battery systems that we own through the ESA third party ownership product. We have to claim those tax credits. In the IRA, there are tax credit transfer market. Tax credit transfers were allowed, now there's some marketplaces, but that's a whole separate beast about generally those markets are set up for large commercial projects. So when you come in with a bunch of small residential tax credits, that's been a learning for us in terms of the insurance you need to participate, the discount you get on those.
(40:32):
On the state level, particularly in some Northeast states, there are large state level incentives, which are rebates, and they don't pay out. For a homeowner, it would be a point of purchase rebate. For us, it's not. We have to go get the money. We have a debt facility that we can bridge finance that money so the whole projects can proceed. It can be full cost of ownership for certain customers. Low-income customers, they had a solar and battery system for nothing, but somebody has to pay today even if the rebate's coming in six months or something. There's a lot of nuance depending on the program.
Cody Simms (41:06):
The government's good for their money, it just don't know exactly when it's going to show up.
Jeff Chapin (41:10):
Don't know when it's going to come. I guess that's the nice thing about tax credits. You get it when you file your taxes. Even in the IRA, there are additional rebates coming to the states, but those really haven't rolled out yet and it's unclear exactly how those will get claimed and what the process will be like.
Cody Simms (41:26):
On the subject of financing you all have now, you've recently announced your series A round and obviously a seed round before. Maybe talk us a little bit through who's participated in the company to date.
Jeff Chapin (41:37):
Yeah. Our seed round really led by Giant Ventures and Lerer Hippeau. Lerer Hippeau was a seed round investor in Casper, so we have a long relationship, and then the CEO of our business and my partner, Vinnie Campo, he had a previous relationship with Giant Ventures, one of their partners. So that was probably the easiest fundraising to date. We had two conversations, I got a few checks, and there were some smaller checks that came in.
Cody Simms (42:02):
Hey, that's actually a good story for any early founders who are listening to this, which is I know you read these TechCrunch articles and you see these 4, $5 million seed rounds and it's all these huge name investors. There's a lot of times there's a lot of history there in those early rounds between the founders and the investors who get involved. So just as a reminder to founders who are listening, it's never easy to raise money, but if you already have relationships, sometimes it can be a little bit easier.
Jeff Chapin (42:29):
A lot easier, I presume, maybe if we've gone out and run a competitive process, but we also just wanted to start the business and get going. It's a funny thing, if you're a founder in a venture business, any exit is a remarkable financial transformation of your life. I personally don't know why we'll worry and hem and haw about an extra 1 or 2% dilution here or there because either works and you're fine or it doesn't work and you're trying something else. The economics were not that big a deal to us. The A round, I would say we were fundraising and you would know better than me. That feels like it's maybe starting to tick up again in terms of VC sentiment, but it was pretty bad when we were out.
Cody Simms (43:10):
2023 was really rough. '24 is getting better.
Jeff Chapin (43:14):
So we started I think in August '23 and man, oh, man, I almost ran out of steam. It was so many conversations, a lot of rejections, but at the end of the day, you just need one and the lead investor and then people follow through. So Comcast Ventures came in. It's an odd one, but they have a big customer base. I can't speak totally to it, but thinking about themselves more as a broader utility to homeowners.
Cody Simms (43:39):
They built in large business installing things in people's homes.
Jeff Chapin (43:42):
100%, and and their interesting partnerships were with them or with some other folks we're working on where a lot of the company's homeowners interact with know a lot about them and they would know whether you're a good candidate for a battery, you're a good candidate for solar or do you qualify for some of these very generous incentives coming from the government. So those type of partnerships are valuable for us because in general marketing, it's harder to find those people, but a utility would know who's on an income adjusted plan and they can just say, "Well, we can't give you their email, but we can reach out to them." So those partnerships are very valuable.
(44:19):
I'll say we're not searching for needles in a stack. We know there are certain types of people who have a profile which is a really good fit for what we do. And when you're doing search marketing or direct mail or social, it's just harder to find that specific profile.
(44:34):
We raised the series, A, just got back to business once we got it done. Who knows what will happen? But one of my learnings from Casper is we're always having to go get more VC dollars. I'd much rather this business after this a route to be cash flow positive so we can be more selective in terms of why we're raising money or more deliberate to why we're raising money. Obviously, after a seed round, you're raising money like the lights on and keep going, but now we have revenue and margin and we just need to get a little bit more scale, then we've got free cash flow, and then you have a lot more, as a business owner, a lot more freedom in terms of the decisions you make and how you operate the business.
(45:16):
Casper grew up and growth is everything, mid-twenty-teens where it was just growth, growth, growth. And so this is a very different era right now and I think something that's probably a better way to operate a business.
Cody Simms (45:29):
Well, Jeff, this has been an incredibly comprehensive conversation. Is there anything else we should have touched on? Anywhere you need help or want to call out to listeners? Anything else before we wrap up here?
Jeff Chapin (45:42):
I don't know if you have this group in your listening cohort, but one interesting thing for us is particularly on the low to moderate income LMI-focused customer cohort, we really strongly believe that traditional marketing channels are probably not going to be overly successful to reach those groups. We haven't participated in, but we've done research worth and talk with folks that have participated in small scale pilots where companies like ours have partnered with local community nonprofits or community organizations who are more deeply embedded.
(46:15):
So if there's anybody out there who's looking at energy equity, particularly in California, it could be statewide, but particularly also like local wide, that'd be really interesting for us to talk to because we just see there's this enormous pile of government money that's both trying to help low to moderate income customers and trying to address grid issues. So that'd be interesting to talk to folks in that space. I've heard on the past podcasts, anybody who's interested in the space, feel free to reach out. We're always looking to grow the team if we could find the right talent.
Cody Simms (46:48):
Well, Jeff, thank you so much for joining us. I learned a ton. Good luck as you continue to build the business.
Jeff Chapin (46:53):
Awesome. Cody, really appreciate it. Thanks for everything you guys do.
Jason Jacobs (46:56):
Thanks again for joining us on My Climate Journey podcast.
Cody Simms (47:00):
At MCJ Collective, we're all about powering collective innovation for climate solutions by breaking down silos and unleashing problem solving capacity.
Jason Jacobs (47:10):
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Yin Lu (47:23):
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Cody Simms (47:32):
Thanks and see you next episode.