Heating and cooling may sound simple, but after solar, it is the next frontier in residential decarbonization.
By the end of the decade, a group of 25 countries has a goal of installing 15 million heat pumps. Nine of these states want 90% of their residential heating, cooling and hot water systems to use this technology by 2040. To cope with the workload, the US will hire 23,000 technicians by 2032. Even then, they will likely be overloaded.
Part of the problem is that installing heating, ventilation, and air conditioning (HVAC) systems is laborious and time-consuming. Automation is not good. But a lot of the rest of the work could be that, especially quoting new projects.
“Contractors spend three to five hours with a potential customer and have a 20% to 25% sales conversion rate,” said Phil Krinner, co-founder and CEO of Arch, a software company aimed at HVAC installers. “This is not only frustrating, but also a huge waste of resources.”
Buildings produce about 30% of carbon pollution in the U.S., and Krinner saw an opportunity to reduce emissions by encouraging people to switch from fossil fuel heat to heat pumps. He noted that the technology is ready, but the contractors are not.
Three years ago, Krinner asked 15 contractors for offers to replace his apartment's heating system with a gas furnace or a heat pump. The average price for a heat pump is higher, but none of the contractors can tell him whether it will save money in the long run.
It was a surprising omission. Krinner worked for years in the solar industry, where savings on utility bills are the most important part of the selling point. This, combined with low-cost solar panels and project design and quoting software, has helped the industry grow 24% annually since 2010. If heat pumps were to reach their potential, similar data and tools would be required.
Krinner first got to know the industry and supported contractors in preparing offers and installing heat pumps. Eventually, he and his co-founder Sacha Schmitz put together a team and developed an algorithm that would help contractors estimate jobs more quickly.
By using publicly available details about a home, such as: For example, the square footage and number of rooms by the time of construction, Arch's software can suggest a suitable heat pump capacity in minutes, reducing hours from the usual quoting process that usually involves measuring rooms and inspecting radiators and Piping.
“I’m not saying we’re 100%,” Krinner said. “But the interesting thing about heat pumps is that you don't have to get it perfect.” That's because heat pumps can vary their output dynamically, and the internal components of heat pumps typically only come in five different sizes between 6,000 and 18,000 BTU. “Since there are five units,” he said, “I obviously have a 20% chance of accuracy.”
The startup has dabbled in pre-seed funding but recently raised a $6.2 million seed round from Coatue, Floodgate, Gigascale Capital, MCJ Collective and ReGen Ventures.
Currently, the San Francisco-based company is focused on the Northeast, where poor natural gas infrastructure means many homes are still heated with costly oil. “There is a lot of traction in the market and the introduction of heat pumps is therefore progressing very quickly,” said Krinner. “It’s very easy to compete with him from an ROI standpoint.”
Arch will use the seed round to expand geographically and refine its estimation algorithm, Krinner said. The company will also add additional features to its software, including a tool that predicts how much homeowners will save on their utility bills and a marketplace where lenders can offer financing for heat pumps. The latter two are linked, Krinner said, because homeowners who spend less on utilities are more attractive to lenders, which should help lower financing costs.
Krinner and Schmitz's timing couldn't be better. Not only have dozens of states committed to encouraging heat pump adoption, but the Inflation Reduction Act offers incentives of up to $2,000 for homeowners who install heat pumps. If heat pumps were attractive before, they are now even more attractive.
Still, there is a lot of inertia in the market to overcome. Many sell what they know, which is usually oil or gas furnaces. Helping contractors see the value and benefits of heat pumps could go a long way toward overcoming their reservations. Software has helped accelerate the adoption of solar energy, and the same could be the case with heat pumps.
