Keep Cool Deep Dive #0008: Dandelion Energy
By Nick Van Osdol
Setting the Scene
What comes to mind when you think of dandelions? Perhaps you think of the scourge of your lawn – an opportunistic plant that probably contributed to the phrase “grows like a weed.”
“Dandelions have a taproot that can grow deep underneath the ground and looks kind of like a ground loop.”
Ideally, the pervasiveness of the dandelion species will also ultimately come to epitomize the success of Dandelion. What’s Dandelion’s mission? In Kathy’s words:
“Our aspiration is to make geothermal, and heat pumps in general, as easy and inexpensive to purchase as a furnace or a boiler is today. This will electrify heating.”
Heating and cooling is a massive climate challenge. In the U.S., for instance, up to 7% of total carbon emissions stem from heating and cooling homes alone. And this doesn’t take into account other proximate sources of emissions, such as transporting heating fuels.
Heat pump technology has been around for a while. Geothermal heat pumps have been around since as early as the 1940s. While some geothermal systems produce electricity (Iceland produces two-thirds of its primary energy use from geothermal given favorable geological conditions ♨️), the heat pumps Dandelion wants to popularize don’t; they require electricity to heat and cool homes and are connected to the grid.
Compared to burning fuel oil or using natural gas to heat a home however, geothermal heat pumps are a much greener solution because they use electricity to harvest renewable energy from the ground. If and when the electrical grid is composed of renewables, the system could be a zero-emission source of heating and cooling for buildings end-to-end.
Over the next decade, ideally we’ll see geothermal heat pumps take off in the same way rooftop solar has over the past decade. How do we get there, and how is Dandelion positioning itself to be the U.S.’s geothermal giant? That’s what we’re set to explore today 👇.
Looking for a primer on how geothermal heat pumps work? We wrote one here.
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Growing up in New Hampshire with a father who was a naturalist, Kathy cultivated an interest and an appreciation for the environment from an early age. How she could translate this into a career remained an open question for her for a long time. Kathy majored in Civil Engineering at Stanford but didn’t conceive of herself as a professional engineer per se. In fact, she never would have guessed that’d be her major in the first place:
“I just chose classes that were interesting to me like air pollution and water resources and energy. It turns out a lot of those classes were in the civil engineering department. I never would have guessed that I would have majored in civil engineering.”
She also graduated at the height of the financial crisis in 2009 and civil engineering job opportunities were slim. She started working at Google instead, a familiar path for Stanford grads. She figured she would “get work experience and that maybe somebody else will hire me after.”
As it turned out… within the decade, she’d be hiring herself! Kathy navigated Google, constantly looking for roles that would bring her closer to her interest in energy and environmental impact. This led her to Google X (now rebranded as just “X”), which fashions itself as a “moonshot factory,” i.e. an incubator for new concepts and ideas. At X, Kathy climbed the ranks and became a product manager tasked with developing and vetting new technical ideas and concepts:
“It was great training – at that time I wasn’t an entrepreneur and didn’t think of myself as one. But in the protective cove of Google X I got experience evaluating what new concepts might be feasible and how to take the first steps to build those into a business.’”
Over the course of her time at X, she was introduced to geothermal heat pumps, which piqued her interest:
“Geothermal heat pumps have been around for decades and are not necessarily as sexy as many things that Google X does.
The fact that heat pumps weren’t as sexy as say, EVs, also crystallized the opportunity in Kathy’s mind however:
“There is so much effort being put into EVs and renewable electricity… Who is working on heating? It’s a massive problem that gets very little attention compared to other challenges with similarly sized emissions that homeowners also spend billions and billions of dollars on.”
The opportunity to scale geothermal heat pumps struck Kathy as even more significant when she considered that almost all stakeholders could benefit:
“The thing I noticed that was uniquely interesting was that (almost) everyone benefits.”
The beneficiaries Kathy identified are as follows:
- Homeowners: heat pumps are a less expensive system for heating and cooling.
- The environment: this is a renewable heat source that’s zero-emission, compared to emissions intensive heating fuels.
- Utility companies: heat pumps are more efficient and can reduce pressure on the grid during peak-times. Plus, they run on electricity, which the utility company gets paid for.
As she got excited about the opportunity to scale geothermal heat pumps, Kathy also realized that building that business within X wasn’t necessarily the best path forward:
“It became increasingly clear that it wasn’t the right type of solution for Google X. We needed to go to residential yards in upstate New York and drill 300-500 foot holes. While Alphabet could do that, it’s very different from any business they had.”
Kathy didn’t see herself as the entrepreneurial founder type at the time. But she did see the beauty of the opportunity at hand, and willed herself to take advantage of it.
“It’s so rare to find an idea where the concept checks out, is impactful, and it aligns with your interests. I wanted to be the type of person who would seize this opportunity when it arises.”
While X didn’t have a template for spinning out companies, Kathy pitched them on her idea and they ultimately agreed on an incubator type model: X got equity for ‘incubating’ the idea, and Dandelion got to turn over a new leaf as a standalone business 🌱.
When Kathy and her team spun out Dandelion Energy, they faced the same challenges that all start-up founders do. When we first researched Dandelion, we imagined that coming out of X, they would have already been funded. They weren’t:
“What some people don’t understand is that when we spun out we weren’t funded. We just had our independence. We had to start from the beginning and raise money. In retrospect I’m thankful for that: You have to face that eventually, you might as well face it in the beginning when the rounds are smaller. It was the best thing for us.”
When Dandelion started fundraising, they were doing so between the end of the cleantech days and the boom in investment in climate tech businesses that’s happening now. The story they pitched to investors was one of cost saving for consumers, not one of saving the environment:
“In 2017 when we first started raising we didn’t even position it as a cleantech company – at that time no one wanted a cleantech company. We just talked about saving homeowners money on heating. No one asked us what our impact would be.”
This speaks to the fact that the business makes sense on its own merits, even before you add climate impact considerations. And even though they went through boom and bust cycles, past decades of climate tech development also yielded useful insights for Dandelion on how to scale. Specifically? The rooftop solar industry, which went from a niche hobbyist project to a $60B+ industry, offered a useful roadmap.
Kathy described the corollary of solar to heat pumps:
“Solar pioneered the business model. Their challenge was similar, ‘How do you standardize and gain mass adoption of a renewable energy product for the home?’ Rooftop solar existed for decades before it took off. That was the case for geothermal before Dandelion as well.”
What propelled the solar industry forward? It was a combination of improving technology, financing and incentives, and perhaps most importantly, well capitalized companies taking a risk to scale installations.
The same combination of factors and dynamics could play out well for Dandelion too. As we’ve discussed, the tech has been around for decades. In Dandelion’s case, they’ve made their systems more attractive in a few ways. While geothermal heat pumps can actually serve many different types of buildings, since Dandelion focuses on residential single-family homes, one main challenge is simply convincing consumers to take the leap. Once the heat pumps are installed, they’re quite low maintenance and start driving greater efficiency and cost-savings right away.
Dandelion has spent considerable time perfecting the drilling and installation process. For one, they reduced the size of the drilling equipment they needed as much as possible. This widened the set of customers and home types they can serve. If the equipment needed to drill was huge, they’d only be able to service homes with a lot of space surrounding the property:
“We’ve done a good job of making the drilling equipment we need much smaller. We don’t often disqualify homes because we can’t drill, although it does happen occasionally.”
For siting purposes, another advantage that Dandelion has is that they’re able to determine whether their systems could fit a site based on a ‘digital’ tour (i.e. pictures from a homeowner) of the property alone. Here’s how Kathy described it:
“We’re able to accurately determine whether a home qualifies and design a system remotely. We ask the homeowner for a few photos and have a team of designers to assess them. Once the homeowner decides to move forward, then we send someone to the home to do a full survey.”
In this way, Dandelion reduced what’s required of consumers to get the ball rolling, especially considering how important remote capabilities have become over the past two years.
How does Dandelion make money? The business model is quite simple:
“Our business model is straightforward: regardless of whether people choose to buy the system upfront or choose to take out a loan, we get paid upfront for the heat pump.”
While recurring revenue models are all the rage in say, software industries, getting paid upfront for each install isn’t a bad way to operate either. Kathy did note they’ll explore financing for consumers that incorporates more of an ongoing revenue stream in the future as well.
This leads us to another key question, namely how consumers finance the upfront cost of Dandelion’s systems. Here’s where lightbulbs really went off for us 💡; Kathy described a “savings-from-day-one” model that eliminates upfront costs for consumers:
“We partner with a third-party bank who provides financing to customers so they can pay no money upfront and save money each month compared to what they would have spent before. Your loan-repayment plus what you pay to run the geothermal system is less than what you were spending previously for heating fuels.”
Further, in the same way solar has benefitted from regulatory incentives, Dandelion has positive tailwinds working in its favor on that front as well. Many of the same tailwinds as solar, in fact:
“We benefit federally from the same tax credit that solar does – the ITC (Investment Tax Credit) that gives you 26% back. That same tax credit applies to geothermal.”
Finally, one additional variable that works in Dandelion’s favor that solar couldn’t lean on as heavily is the fact that Dandelion’s geothermal heat pumps are attractive to utility companies as well. Kathy laid out the dynamics at play as follows:
“Utilities benefit from geothermal adoption because more people are using electricity, including at non-peak times like at night. And during hot summer days when utilities are constrained, geothermal is much more efficient than air conditioning. So we see utilities incentivizing geothermal, which is an amazing tailwind to have.”
With an attractive set of market dynamics and demand drivers, let’s take a look at where Dandelion has seen success so far. At present, Dandelion operates in the northeast U.S., specifically in New York, Connecticut, Massachusetts, and part of Vermont. In Kathy’s words,
“The northeast is to geothermal what California was to solar.”
Why? Perhaps most importantly, Dandelion’s core value proposition of saving homeowners money plays particularly well there:
“If the northeast US was a country, it’d still be #1 in the world in terms of spending on heating. Almost all of the fuel oil that’s used in the U.S. is used in the northeast, and that’s a very expensive heating fuel. And there’s millions of homes that use it, meaning you have a high population density, expensive fuel, and it’s very cold.”
To-date, they’ve installed their systems in nearly 1,000 homes. We’ll return to the question of how they can scale that to 10,000 or even 100,000 homes over the next decade. First, let’s also address the climate impact component of Dandelion’s expansion plans.
Dandelion’s path to climate impact is straightforward. With respect to the businesses’ emissions reduction potential, here’s how Kathy set the scene for us:
“The emissions from transportation in New York are comparable to those from heating. Heating is one of the largest sources of emissions in climates like the Northeast.”
We get most excited when a company’s business model and their impact story overlap 1-1. This is the case with Dandelion. Scaling installations of geothermal heat pumps alone will reduce carbon emissions significantly:
“The same things that help our business grow drive impact. We make money by installing heat pumps that replace fossil fuels. We don’t have to track our financial and our impact metrics separately. We can focus on growing the business.”
As consumers get more climate-conscious, Dandelion’s is also a clear story to communicate to them. You’re saving money on your bills. And you’re helping slow climate change!
As is almost always the case, there are areas in which Dandelion can still push to solidify even greater climate impact. If you look back at some of the earliest moments of public awareness about the impact of human activity on our environment, refrigerants come to mind. Freon was used in refrigeration starting in the 1930s. By the 1950s it was common. Fast forward a few decades, and by the 1980s, scientists realized chemicals like Freon were responsible in part for ozone layer depletion 😬.
The refrigerants that are used in heat pumps today are safer, but can still accelerate global warming if they leak into the atmosphere. A primary impact priority for the industry and Dandelion will be to start using even safer and ‘greener’ refrigerants. This can’t be done overnight; the components of heat pumps that use refrigerants still need to be modified to accommodate these changes, and then reach production scale. But it’s a transition that Dandelion can help agitate for:
“The whole industry wants to switch to refrigerants that don’t cause as much warming. We can’t inadvertently create more damage. We’re creating our whole process so we’re ready to adopt components that work with new refrigerants when they’re ready.”
Whats next for Dandelion?
What’re the key next steps for Dandelion heading into 2022? After a successful Series B in 2021, led by none other than Bill Gates’ climate tech titan Breakthrough Energy, the team has plenty of runway. And as we noted in “The Impact” section, their success will come back to scaling installations. This can be executed in a number of different ways. For one, it depends on Dandelion expanding the areas they actively serve. Kathy sees plenty of potential markets that would benefit from greater heat pump adoption, including the Midwest, the Pacific Northwest, and even the Southeast.
The primary challenge with expanding to these service areas isn’t technical – the earth mantle in the Northeast where Dandelion already operates is actually one of the more difficult to drill into. The main challenge is logistics:
“Today the main limit to our siting is our service territory. Because we have a physical product that we install out of warehouses we have to invest in building out our assets in order to open up another state.”
Another way to scale is to develop new products, especially ones that unlock new types of customers. Dandelion is hard at work on this front. At present, their systems can only be installed in homes that have ductwork. Soon, this will change:
“A [constraint] we have today is that we only service homes that have ductwork or are willing to install it. Right now we’re rolling out a new product that doesn’t require ductwork, which will allow us to serve homes with radiators.”
Beyond focusing on installations in existing homes, building partnerships with home manufacturers (the largest of which build 10,000+ homes annually in the U.S.) could also be massive for Dandelion. Moving forward, Kathy noted she and the team will place an emphasis on installing heat pumps in new homes in addition to retrofitting old homes.
Finally, data is another strength of Dandelion’s they’ll increasingly look to leverage. They originally built dashboards that monitor all of their systems for maintenance purposes; as your network grows and you have more installations, making sure none of the heat pumps are running out of spec becomes a more distributed yet equally important challenge.
In our discussion we mused about whether Dandelion’s effort to aggregate and monitor data will yield benefits when proving the efficiency story to utility companies and consumers. Kathy certainly thinks so:
“The monitoring also allows us to show utilities how the systems work and to make sure they understand the seasonal benefits. All of those grid dynamics? It’s critical to show the data.”
If we circle back to an analogy that Kathy offered about the Northeast being to geothermal heat pumps what California was to solar, we’re eager to see whether Dandelion can mirror the success that solar has enjoyed over the past decade over the coming decade. From 2010 to 2020, the annual solar capacity installed residentially increased more than tenfold in the U.S. Getting from 1,000 installations to 10,000 and beyond will be no small feat, but it certainly seems achievable 💪.
Why? Well, anecdotally, this story resonates with the next generation of homeowners on whom it will in part depend. Both myself and Mehrad who joined our discussion are excited for Dandelion to expand their service areas so that we too might be ‘in-market’ someday. Until then, we’ll be sure to keep in touch with Kathy and provide updates on the latest.