Podcast
Podcast
- 09 Feb 2022
- Climate Rising
How BlocPower is Decarbonizing Buildings
In this episode of Climate Rising, Donnel Baird, founder and CEO of BlocPower, a New York-based climate tech startup, discusses how his company is tackling building electrification. He explains what makes this corner of climate change tech both a challenge and an opportunity, and how his company is working to help the city of Ithaca meet its 100 percent decarbonization of buildings goal.
Buildings represent 40 percent of global greenhouse gas emissions. Seventy million American homes and businesses rely on fossil fuels – natural gas, oil, or propane – for heating and cooking, which generates 600 million tons of carbon dioxide each year. Their occupants also risk being exposed to high-levels of harmful combustion gasses such as nitrous dioxide and carbon monoxide, especially in low-income communities, which often bear the brunt of health impacts of climate change. Decarbonizing buildings by shifting them to all-electric heat sources, and to have them draw carbon-free electricity, represents a huge opportunity – and a critical step to moving us away from fossil fuels. Reducing emissions from buildings can also offer many co-benefits, from improved air quality and energy security to economic gains, such as increasing asset values of buildings.
Resources
- Acronyms used in this episode include TAM (Total Addressable Market, the total market demand for a product or service), ASHP (air-source heat pump), and VRF (a type of heat pump that delivers refrigerant at variable rates from the outdoor compressor to the indoor air handlers)
- Ithaca plan to decarbonize its buildings (NPR article)
- How the $2 billion building-sector startup Katerra went bankrupt
- Health concerns associated with gas stoves: Rocky Mountain Institute report and a widely reported Stanford study
- Learn more about electrifying homes and the transportation sector from the Electrify Everything episode of the Climate One podcast
- An introduction to the Toyota Production System is featured in the NUMMI episode of the This American Life podcast
Guests
Climate Rising Host: Professor Mike Toffel, Faculty Chair, Business & Environment Initiative
Guest: Donnel Baird, founder and CEO, BlocPower
Transcript
Editor’s Note: The following was prepared by a machine algorithm, and may not perfectly reflect the audio file of the interview.
Mike Toffel:
This is Climate Rising, a podcast from Harvard Business School, and I’m your host, Mike Toffel, a professor here at HBS.
In today’s episode, we’ll hear from Donnel Baird, the founder and CEO of BlocPower, a climate tech startup that’s decarbonizing buildings. Buildings account for 40 percent of greenhouse gas emissions, so it’s a really important sector to decarbonize. BlocPower is working to convert buildings’ oil and natural gas heating systems to all-electric heat pumps that produce heating and cooling.
They’ve developed software to produce faster and cheaper engineering assessments to customize solutions to each building. BlocPower is combining their IT-enabled assessments with project management to assemble turnkey solutions to building owners that include financing, procurement, and installation.
Their work is making buildings healthier and more efficient. And these all-electric systems are key to generating carbon-free heating and cooling when these buildings rely on clean power, which will accelerate as we continue to decarbonize our electricity grid.
The City of Ithaca, New York recently made headlines when it voted to become the first city to commit to decarbonizing and electrifying all of its buildings, both public and private, by 2030. The city selected BlocPower as its key partner to get this done.
Today, you’ll hear Donnel talk about the challenges and opportunities of greening existing buildings, why he chose to focus on this corner of climate tech, and BlocPower’s work on the Ithaca project.
Donnel also offers some recommendations for MBA students and entrepreneurs looking for the next great opportunity in climate change tech.
Here’s my interview with BlocPower’s Donnel Baird.
Donnel, thanks so much for joining us on Climate Rising. I’d like to begin by asking you to give us a brief introduction to what BlocPower is, and what it’s trying to accomplish.
Donnel Baird:
Yeah. Well, I'm super excited to be here. Thanks for the invitation. At BlocPower, we want to turn buildings into Teslas. We want to rip out the fossil fuel heating and cooling equipment from buildings in the same way that Tesla has removed fossil fuel engines from vehicles and move vehicles to all electric. We can now do the same for buildings. And since buildings contribute 30% or so of US greenhouse gas emissions, it's really imperative that we lead the world in reducing emissions from real estate assets. This is not a moonshot, the hardware and the software and the financing are all there. They all exist. We don't have to invent some new technology, as you do in other sectors of climate tech. You got to invent like nuclear fusion or you got to figure out how to scrape carbon from the atmosphere.
This is all settled, existing technology and hardware and software. And so reducing this 30% of emissions is something we can do now. It's actionable. And so as soon as I understood that it was possible, I looked around the landscape at the time. I was a consultant to a bunch of labor union pensions who had a strategic partnership with the Obama administration, with the US Department of Energy. They had about $90 billion of labor union pension funds that wanted to co-invest with $6 billion that Vice President Biden and President Obama were investing in greening buildings across America. And I looked around the landscape, seemed like a lot of money to me, but I hadn't gone to business school. I didn't know much about business. But seemed like $95 billion was a lot of money to stand up this national industry.
But after working on it for a few years, I learned that it actually wasn't enough. It's a massive market with a massive TAM. And there were huge operational challenges beyond assembling financing that were preventing the market from transacting and taking off and becoming a fully independent mature industry. So not tech breakthroughs, operational breakthroughs. And so it seemed that even though I didn't have a business background, it seemed like it should be solvable. I looked around the landscape to see who was solving it and didn't see many folks who were actually thinking about it in the way that I thought was needed. And so that's how we ended up starting BlocPower. It really is just working backwards from a problem that we ran into that I think should be solvable. And so I think it's important to solve it. And so that's what we're doing.
Mike Toffel:
Great. If you could tell us a bit about the technology side, what is the technology that is established that you're saying can be deployed? And then what are the operational challenges that are preventing it from happening?
Donnel Baird:
Yeah. I mean, the silver bullet breakthrough, in addition to mobile computing, cloud computing, machine learning, these are software technologies that were not widely accessible back in 2009 when we were doing the American Recovery and Reinvestment Act, the Obama stimulus. We didn't have cloud computing and machine learning. We had it, it existed, it just wasn't affordable and was not widely available. Apple had come out with the iPhone in 07, or something like that, but everybody didn't have them yet. And so there's just all the stuff we could not do back in 2009 that we can do today. And so despite that, the real breakthrough is on the hardware side, which is that there are these electric heating and cooling systems, which are called heat pumps.
These things are great. They actually are all electric heating and cooling systems that you install in your house and they can heat and cool any room to the level of comfort that makes sense for just that room. And they use significantly less energy and 70% reductions in greenhouse gas emissions And really the Japanese manufacturers are the ones who pushed this breakthrough, Mitsubishi, Daikin, Fujitsu, are the world's largest manufacturers of these heat pumps, or what they're called in the industry, ductless mini split heat pumps, air source heat pumps.
And they figured out how to have these devices function even on very cold days where it was freezing, you could actually have these electric systems work. 10 years ago, if it got below freezing, the fans wouldn't work and the fluid would freeze and would kinda stop heating. And so you would have to have your gas system or your oil heater as a backup because once it got super cold, its electric heat wouldn't work.
But now, with this new hardware breakthrough over the last five or six years, even when it's freezing cold, you can heat your house with 100% electricity. So now that we can do that, we should do that. The operational problem is how do you distribute this hardware breakthrough to 125 million buildings across America? You got to finance it. You got to install it. You got to size it. You got to insure it. It's a huge set of operational business model problems that are required to distribute this breakthrough technology to 100 million homes. And obviously, there's a marketing problem because we got to figure out how to make this thing cool and accessible and consumer friendly so that everybody wants one.
Mike Toffel:
Right. What's the payback period for an installation? And how does that vary by the types of buildings that you work with?
Donnel Baird:
Yeah. The payback, I mean anywhere from three years to 15 years, depending on the complexity of the kind of building that you're working on. Multifamily apartment buildings are quite complex because if you have a 50 or 100 unit apartment building in Manhattan, you have to install the devices in every room, in every apartment unit. And so operationally, you're sending a construction crew to every room in every apartment in a 50 or 200 unit building. And so there's a lot of operational work and that actually increases the expense dramatically.
What if you send your construction crew out and you knock out 40 apartments but there's 10 people who aren't home and so you can't get in? Well, you got to pay that construction crew, those trucks to come back out the next day. And if you come back out the next day and only five of the 10 people are home, then you got to send them back out a third day. There is an operational complexity. There is a construction complexity. There's an indoor component to the unit. There's an outdoor component. And so you need to situate them in the buildings, on the roof or on the side of the building or on the ground. And so there's some planning in design and construction that needs to happen. You may disrupt lead, asbestos, molds, kind of legacy construction issues in the building.
So all that stuff has to be thought through and operationalized and financed. And so depending on the kind of building, the size of building, its state of repair or disrepair, there's going to be a broad range of paybacks. I think one of the things that we have to figure out is we have to market these things better. What's the payback on a Tesla? Well, a Tesla is more expensive than many fossil fuel cars, but a Tesla is a better car. It's faster, it looks cooler. Your maintenance costs go down over time. And if you're going to buy a Tesla, you're getting a better product and so you pay a little bit more. And it's marketing's job to help educate the customer so that they understand that. So these systems are better. They're healthier, they don't release nitrogen dioxide, they don't release carbon monoxide into the home. They don't give your kids asthma, quite the opposite, and they're all electric to benefiting the environment. And over time, they can save you a ton of money because they're hyper efficient.
The question is operational, how do we lower the installation costs and the cost of labor to make these things hyper affordable for everyone? And so, I mean, you're a professor of operations, obviously with new products, it's expensive to get them out to market. And then eventually, once you get to scale, we can lower some of those customer acquisition costs, some of those installation costs, some of the manufacturing costs because the industry becomes more and more mature and the product becomes more and more mature.
It's kind of like solar was 20 years ago.
Mike Toffel:
Right. And we've seen dramatic reductions both on the technology side and on the installation side. And solar. Is that the type of thing we should be expecting with heat pumps?
Donnel Baird:
Correct. The soft costs that we see being reduced, the operational soft cost in solar, that is exactly what we need to see in heat pumps. And our startup is trying to drive that set of operational innovations that allow that cost reduction.
Mike Toffel:
You've been at it for about 10 years or so? I think BlocPower was founded in 2012.
Donnel Baird:
Yeah. We started LLC when I was in B school at the end of 2012. So it was really 2013. And we did a little pilot project at the beginning of 2013 with five barber shops and restaurants. And then when I graduated from B school, spent the next 18 months trying to raise capital. So it's really 2014 before we started to truly operate. We've been at it for a while seven to eight years plugging along.
Mike Toffel:
In the eight years or so that you've been at it, what cost curves have you been experiencing? Have you been figuring out how to do these installations more economically? Are the service providers you're engaging with able to work more efficiently than they were just eight years ago?
Donnel Baird:
Well, we actually have invested in software. I mean, we're a Silicon Valley-backed technology firm? We don't sell software, but we build software in order to reduce the operational complexity of the projects. And so what we do is we build digital models of buildings and we simulate the energy system inside the building under various conditions. Well, here's the existing energy system. This building burns oil. What if we put solar panels on the roof? What if we put heat pumps in all of the apartments? What if we put in a VRF heat pump instead of an ASHP heat pump? How does that impact this specific energy system in this building? Those are operational and design costs that can cost 50 to 100,000 dollars if you hire an engineering design firm. But because we've built software to simulate these costs, we're able to avoid these costs through digital simulations.
And in some instances, we've been able to reduce costs by as high as 90% versus current industry practices and competitors. And that gives us a cost advantage with customers. And so really, we've invested in the digitization of some of the really difficult upfront cost in the process. It allows us to provide accessible information on the return on investment to a high volume of building owners. So now that we can widely market and we can afford to do marketing on the ROI on a building-by-building basis for these products, then we can get a customer funnel going and reach a higher volume of customers. And now that we've accomplished that over the last few years, now we are turning to our attention to what are the ways that we can really collapse the cost at the point of installation.
And construction, as I'm sure you know, is one of the least efficient industries in America. But there's a massive opportunity. Many have tried and failed to disrupt construction itself. Katerra most recently raised a couple billion dollars to try and innovate in the field of construction by applying insights from Flextronics. They couldn't quite pull it off. But there are lots of use cases where the digitization of buildings can impact construction processes and impact the ways that construction crews understand their work, communicate with one another about their scopes of work, manage and project manage their scopes of work.
And so we're, we're actually building out an augmented reality construction platform that will allow people to use their smartphones on site, to not only capture data, but project manage construction projects using augmented reality. And we think that this is also going to lead to another major collapse in the cost of heat pump projects. And then last, we're pushing our manufacturing partners to drive the operational efficiencies they need to reduce the cost at the point of production for these systems. There are major ways that you can push on this. And then, of course, there's a cost of capital to finance the projects. And so yeah, we're very focused on driving some operational innovation to across installation, engineering, assessment, financing, and manufacturing that can help this industry take off.
Mike Toffel:
Got it. From a client perspective, it sounds like they face three main costs. One is the engineering assessment, what's the right system for me. And then there's the technology cost, the equipment. And then there's the actual installation, getting the folks in to install the equipment and then they're off and running. Is that right?
Donnel Baird:
Yeah. That's right. and if they don't have capital available and they need to finance, then there's the cost of capital to do the project. And financial firms have to underwrite the risk of this kind of quasi-new technology, installers who have four or five years of installation experience. And so there is a cost of capital issue as well. But from a client perspective, that's right. There are these three or four buckets they have to move through.
And our argument as BlocPower is we want to be a turnkey provider. We don't want the client to have to go through four different processes to get to a heat pump installation. We want them to go through one process. We want them to fill out a 10-minute quiz at blocpower.io on their building. And if they want to move forward, that's it. They can sign a contract on their phone and we'll send a contractor over and we'll take care of everything from that point forward, as opposed to having clients navigate an engineering process, and an installation process, and a financing process, and a manufacturing negotiation for the equipment. Clients don't want to do all that. And they can't do all that. And so we want to be their partner.
But the problem overall is the industry is hyper fragmented. You have a lot of engineering design firms who make their money just on engineering and they can't install and they can't finance. And they don't talk to the equipment manufacturers and vice versa. The manufacturers don't engineer and they don't install and they don't finance. And so you have this lack of integration across the industry that's driving costs higher in making customer experiences more fragmented. And so BlocPower's job is to serve as a full stack or platform or turnkey services' provider to solve for that for our customer.
Mike Toffel:
Why is the construction industry so fragmented? It's quite unusual compared to other industries. Do you have a sense of that?
Donnel Baird:
I'm really interested in that question. it seems to me that construction, there's local permitting processes where you have to get permission to build, what can you build or not. So if you're trying to build something in Martha's Vineyard, there's a big process. If you're trying to build something in Boston or Cambridge, I think there's a big process. Like there's different permitting processes and building codes and that's all hyperlocal. And then it does seem in some ways that many projects are custom, particularly for existing buildings.
Every building is almost like a unique snowflake, right? You can have two buildings that were built by the same construction firm 30, 40 years ago, they have different owners, they have different users. And over time, that user, that owner's behavior will change identical buildings to where they're dramatically different. And so you or I will show up to green those two buildings 30 years after the fact, and we'll go into the buildings, they're both identical, same material, same blueprint. Even though it's the same building, the changes and the differences in usage of two identical buildings over time, make them different buildings, which have to be analyzed, engineered, designed differently.
And so all of that stuff is custom and fragmented and figuring out what are the ways that we can use software? What are the ways that we can use machine learning? What are the ways that we can train up a workforce that's flexible enough to adjust to custom versus standard templates for construction projects? How do you implement that? one of the things I remember learning in ops class was about the Toyota factory model
Yeah. And there's this great, This American Life podcast where the Toyota guys cut a deal with GM and they come over and they train the GM workers on the Toyota manufacturing model. And how do you think about balancing, just-in-time manufacturing and when something goes wrong and what happens and the interaction and engagement of the workers on the line. IBut that's what we need is this new, different operational model for construction in America in the same way that Toyota innovated on the automobile manufacturing line. And the second part of this is millennials are not going into the construction industry. They're not going to work at Uncle Jimmy's Plumbing Corporation. And so there's an under supply of new labor in the industry. And so it's your incumbents who are set in their ways. They continue to drive the industry and they're slow to adopt technology and innovation.
Mike Toffel:
Interesting. I want to come back to a few points you made earlier. When you say that BlocPower is using heat pumps to produce a higher quality product, akin to Tesla compared to internal combustion engines. Can you just say a little bit more than that? When people think about heating and cooling, I'm not really sure how they measure the quality of that service, except when I set the temperature to 68, does it keep me at 68?
Donnel Baird:
Yeah. Well, one of the things that we think is really important and clear is anybody who has kids and young children and families, when you set that temperature to 68, if you have a fossil fuel system you're burning oil or gas in your home and producing carbon monoxide, nitrogen dioxide, greenhouse gasses. And all of that stuff recirculates around your home. And it turns out that the amount of nitrogen dioxide that's produced is so high that it actually exceeds EPA regulations. This is going to turn out to be like lead paint. Lead paint was something bright colors, look great. And so everybody went around American painting all the buildings with lead paint. Then it turns out that if a little kid eats lead paint, that it damages their neurological development. So now we got to go in and pay to remove all the lead paint from all the buildings all over America.
Burning fossil fuels and gas, in particular indoors, will be like that. In four or five years, the data will be crystal clear that breathing in large amounts of nitrogen dioxide in your home at levels that are much higher than what the EPA would allow. No one has ever thought to really measure the amount of nitrogen dioxide that gas ovens produce in our homes across America. And over the last 12 to 18 months, scientists have finally started to measure them, and the rates are astronomical. And so part of what we've got is a marketing issue where we need to educate customers. Hey, when you turn that dial to 68, you're burning and breathing that stuff in, and that has a public health impact and impact to your family. That's one part.
Second, not only is it unhealthy, it's inefficient. It's an efficient way to provide 68 degrees of heat around all of the buildings in your home or your dorm or your Harvard building. Producing centralized energy in a building's basement and then pumping it into various rooms and having it leak out the windows or the walls of those individual rooms, that is an inefficient process from a physics perspective. There's a rate of energy loss as energy and heat and cool moves through the building, through the pipes and the vents and all that stuff as opposed to distributing heat from a source that’s in that room..
And so if you have this centralized energy grid where you're burning gas or coal to produce electricity, and then you're sending it through wires and you're losing a lot of power. And then you have gas and you're sending it through gas pipelines to people's gas furnaces, and then they're burning the gas in their basements. All of this stuff is really inefficient thermodynamically and it's unhealthy and it's expensive. And so when we say that heat pumps are better, what we mean is that they're healthier. They're connected to the internet. They're smarter. You can operate them from your smartphone. They use less energy. They produce less unhealthy greenhouse gas emissions. And they can save you money and make your building more profitable and increase the resale value of your home because now you have a green home.
And then last, perhaps most importantly to consumer, they're more comfortable. If you set the temperature to 68 in your house, there still might be that back room, like your office or your study that doesn't matter if you set it to 68 or 72, it's always colder than the rest of your house, because your system is set up in a way that you don't properly heat that corner of your house. And so most buildings are like that. But with these heat pumps, if you set it to 68 in that room, it's going to be 68 in that room. And so it's just a better system.
Mike Toffel:
You have individual thermostats on each unit within each room. Is that how it works?
Donnel Baird:
Correct.
Mike Toffel:
What does it look like in a home that has heat pumps instead of the traditional? So they have these splits or devices on the walls in each room?
Donnel Baird:
Yes.
Mike Toffel:
And is there a central system in the basement as well that is used to do the heat exchanges?
Donnel Baird:
No, there's a compressor unit, there's a unit in each room, and then there's a tiny hole through the wall that runs a tube out to the outdoor compressor unit. But many homes have outdoor components as well now for the HVAC or air conditioning or whatever. And so what's interesting is these heat pumps are the technology of choice in Europe and Asia. I remember visiting Uganda when I was in B school, there's a heat pump in my hotel room. Around the world, these are the systems of choice. In America, we need to catch up to everybody else because they're just better systems.
Mike Toffel:
Interesting. Let's talk about financing for a moment. You said earlier that once you figure out the costing side on the engineering side and on the technology and on the installation, then of course, you got to figure out how are we going to pay for this. And so lots of companies will have to finance it. I wonder if you talk about from a building owner's perspective, what does that look like? And are there government programs, green bonds from the private sector? Like what's new in the financing piece? I mean, as a homeowner, I suppose you could always finance it through a home equity loan or through a mortgage extension.
Donnel Baird:
Yeah.
Mike Toffel:
What does it look like on the commercial side and for apartment buildings?
Donnel Baird:
Yeah. What we do at BlocPower is we create a holding company. We borrow money from Wall Street. We buy the equipment. We install the equipment in the building and we lease it to the building owner for 10 years or 15 years along with an operations and maintenance plan to ensure that the system's functioning during that period of time. And that allows us to amortize and make the systems affordable to people who might not have upfront money or access to capital or don't want to put a lien on their property or what have you. And so that's the financing structure that we've developed in partnership with Goldman Sachs. And we're forever grateful to them for working with us on this and being patient with us as we all developed it together.
And there's various kinds of capital from debt markets, there's rebates and subsidies from governments and utilities, the White House plan has $11 billion of subsidies for heat pumps. There are government and utility rebates to lower the cost of these systems just as you can get a tax credit if you buy an electric vehicle. And so what we think is needed is instead of adding more fragmentation to the financing process, that we figure out, hey, there's utility money, there's local government money, there's federal money, there's manufacturers' rebate as well, let's combine all of that into one turnkey financing solution for you. And so part of the service we provide is aggregating and organizing that financing as we do more and more projects, the cost of capital will go down. As demand increases, the efficiency of production should go up and the cost of the actual systems should go down as well.
Mike Toffel:
Got it. And now you started in Brooklyn, New York. And where else are you operating? I know you're involved in an Ithaca project, which I'd love to hear about. But are those the two locations that you're primarily focused on right now?
Donnel Baird:
Well, we have projects coast to coast. We have projects in Brooklyn. We're signing an agreement to launch in the state of Georgia. We have projects in Oakland, California, Los Angeles, California, Fresno, in Wisconsin and Michigan. I think we're doing some stuff in New Mexico in Albuquerque. we may do some stuff in Texas soon. And so we literally have products coast to coast. We have focused in New York City because that's where we're based and headquartered. And in Ithaca, we recently won a contract. Ithaca's going to be one of the first cities in the country, if not in the world, to decarbonize all of its buildings 100%.
Donnel Baird:
And so on a nine-year timeline, Ithaca will decarbonize all of its buildings and they've hired us to manage that project for them. And so we're also running around the country trying to sign up additional cities. And there are many cities around the country that have passed laws that are saying they want to decarbonize by 2040 or 2050. What we want to do is really push and challenge and partner with people to decarbonize by 2030 or 2026. We have got to get this thing going.
Mike Toffel:
What does the Ithaca project entail? There's a city ordinance that says by such a date, all buildings, public and private alike must be essentially electrified?
Donnel Baird:
Every single building. That's correct.
Or, you could do geothermal, but it needs to be fossil fuel free. So you could do geothermal or electrification or both. But it needs to be fossil fuel free by the year 2030.
Mike Toffel:
And so what's your role in that? Are you going household to household giving them proposals?
Donnel Baird:
We're going household to household offering proposals for how to electrify or how to do geothermal, how to decarbonize each and every building. And so that's the core of our software is we have digital models of every building in Ithaca and every building in New York state. And we have a new project with Jeff Bezos, and his Earth Fund team where they're funding us to build up a database of 125 million buildings across America. So we build digital models of all of the buildings. And before we get to the door, we have a preliminary decarbonization plan for each building. And that allows us to reduce operational costs as we go building to building, to decarbonize all the buildings. It's a really courageous commitment from the city of Ithaca. Our job is to make sure that the damn thing works, that we actually are going to decarbonize all the buildings in Ithaca in the next nine years. And so our goal is to engineer it and finance it and market it to individual building owners.
Mike Toffel:
What do you thinks the hardest part of making the Ithaca commitment realized?
Donnel Baird:
It's just a political courage that's necessary. If you're an elected official on the city council or the mayor, you're not an engineer, you don't understand the core technology. If you don't understand all that stuff, it can feel like a leap of faith. And so that takes a little bit of courage to say publicly, hey, we're going to do this. There's the risk of public failure.
Mike Toffel:
So, if Ithaca’s the first, what cities are you thinking about next?
Donnel Baird:
The hardest part is finding the cities that have the political courage and the operational will to confront the climate crisis in their city and take responsibility for the greenhouse gas emissions that are coming out of the buildings in that city. And so we want to see our American cities that have large populations of really brilliant young people and really brilliant professors and universities with large endowments and large science departments. We want to see these cities confront the climate crisis.
Donnel Baird:
It's 2022. As we all know, we have a very short timeline in order to make massive changes. In a city like Cambridge, a city like Berkeley, a city like Madison, Wisconsin, or even Pittsburgh with Carnegie Mellon, these are cities that meet the criteria where they should be leading the world in innovating to decarbonize 100%, not 20%, not 30, who cares, 100%, as soon as possible and producing a set of data and case studies that will allow thousands of other cities around the world to follow their lead. What we want to see is over the next four or five years, hundreds of cities start to decarbonize at scale and then open source and share all of their data and case studies so that thousands of cities around America and around the world can follow their lead and start to decarbonize with lower policy or perceived risk or operational risk.
Mike Toffel:
That's quite a vision. In the initial work you've done with Ithaca, do you have a sense yet of what the average homeowner's investment will be and what the average homeowner's payback period would be?
Donnel Baird:
Yeah. It's going to be 20 to $50,000 on average ranging on size of the home and what we run into. And we believe payback can be anywhere from seven to 15 years. And so because it's a little bit of a longer payback, like mortgages, there is a role for local government and federal government to help financial markets figure out how to underwrite and capitalize these projects. And so we are looking to partner with the Department of Energy Loan Programs Office to get a bunch of low cost capital that makes it easier to blend with private sector capital so that we can offer seven, eight, 15 year agreements to building owners so that this is affordable. Because at the end of the day, we think it's great that it's healthier, it's great that it's more comfortable, it's great that it's better for the environment, but these things got to save people money. So if we go to Ithaca door to door or Cambridge door to door, and we say, "Hey, we're going to put these heat pumps in your building and you're going to save 15% on your current operational costs."
Mike Toffel:
Yeah.
Donnel Baird:
We want people to save money. We want their building to be more profitable. And that is what will allow us to scale. And so the true operational challenge that we face is, like Tesla, we can say, hey, heat pumps are better so we're just going to sell them to affluent people who can afford it. Those happen to be environmentalists. We're going to build a database of everybody who owns a Tesla. Hey, you got an electric car? Let's electrify your home. We know you can afford it. From a climate perspective, we need to be mass market sooner than that. So we really need to have a plan to operationalize investing in decarbonizing 125 million buildings across America at scale, not just the two or 3 million buildings where affluent people live. And so how do you lower and collapse the operational cost of this industry so that we can serve the mass market immediately? And that's the problem we're trying to solve. And Ithaca gives us a great platform to do that.
Mike Toffel:
Yeah, interesting. I mean, with Tesla, you can imagine they can try and reduce their costs, come down the cost curve by selling to those who are willing to spend 60, $80,000 on a vehicle across the country. And just sort of skim that market, acquire hundreds of thousands of vehicle experiences. And then from there, bring the market down to the model three and others that become much more cost-effective.
Donnel Baird:
Yeah, that's right. They start with the Roadster and it's 120K or whatever it is. And then they have the next one that's like 85. And then you're bringing it down to the model three. And then you're eventually getting down to 35,000 upfront. And they did exactly what you said. And so we could try to do that, and we have a bunch of venture capitalists that want us to do that. The question is from a climate perspective, given where we are now, how do we scale up what needs to happen in buildings immediately? And that's an operational challenge that we're trying to think through.
Mike Toffel:
Yeah. And I think the fragmentation of the installation industry as we discussed earlier, makes that Tesla approach a little more difficult, because if you just skim the top 1% of homes across every county in the country, you're not really allowing the installation folks to come down the cost curve. Whereas focusing in a place like Ithaca and say, we're going to do all the homes, sure, the first 5% might be a little inefficient, but they're going to learn. And then they've got 95% of the other homes to be able to leverage that learning on. [crosstalk 00:43:09] It's much more a geographic strategy.
Donnel Baird:
Yeah. Correct. And now my manufacturers can say, hey, well Ithaca has 6,000 buildings, if you give me the contract to supply all 6,000 homes with 36,000 pumps or whatever. Well, that's an order that will allow me to give you a discount and give you a price break, and I can hire people and get some predictive modeling going as to how to lower operational… Yeah, we think the scale actually allows us to reduce some of the manufacturing and installation costs as you outline and then financing as well because now we can then put all of these buildings in a portfolio. It's almost like a mortgage bond, where we spread out the risk of default. And so the investors feel great about it. There's all kinds of things we can do once we get to scale. I mean, when you think about fragmented industries, how do you recommend students to think about the kinds of approaches they should be taking? Is it vertical integration? How do you think about that?
Mike Toffel:
Yeah. Well, I think that all depends on what's driving the fragmentation in the first place. And we've talked about some of those issues earlier, the customization, the scope, the issues that we haven't talked about are the whole licensing process. The coveted under supply of licenses in places like Boston, which lead to an under supply of service providers, which drives up the price. The other issue is supervision and training. When folks go on site and they work alone, how do you know they're working productively? How do you know they're doing the quality that they need to do?
Mike Toffel:
It's tricky. And so this is one of the reasons I think, why you see a lot of these companies being family companies, because you can trust your family to do the right thing, even when they have opportunities to not do the right thing. And especially when you're working on your own, there's temptations sometimes to cut corners. But if you know it's going to affect your family business, well, then you're much less likely to do it. You see a lot of these long-term relationships in these companies, I think, partly driven by those concerns as well.
Donnel Baird:
It's a construction project risk management approach because you trust that family member to do a great job and not do something where you're going to have to roll the truck back over there in 24 months and fix a problem because someone cut corners.
Mike Toffel:
I think that's one of the things going on.
Donnel Baird:
That's really interesting. One of the things that we're really thinking about is the new iPhones have LiDAR technologies and customers can collect data with their LiDAR app on their iPhone. I have to go buy one and see how it actually works. And we're going to build some technology that allows them to do that with Apple, who's one of our business partners. But that digital model combined with the Internet of Things, if you have a heat pump that can say, I'm heat pump number 740ABC, and I have been installed at this address. And I sent a ping to the cloud and the installer has to take a photo of various stages of the process. And it goes into the workflow management tool.
Donnel Baird:
Can you start to simulate some of the trust because there's a transparency around coming from the installer, coming from the installation process and coming from the successfully installed piece of equipment that knows how and where, and when it should be properly installed and can communicate about that effective installation at scale? And so we're spending a lot of time looking at the Internet of Things as a way of thinking about that. And if you can solve things that way, then this trust problem, I mean, obviously people are going to cut corners and got to look over it, but at scale, you can manage some of these real as well through IoT.
Mike Toffel:
I totally agree. I think audiovisual costs going down, the refinement going up, the ability to take high quality video, high quality photos, and store them in the cloud for very low cost. And then apply machine learning to scan those images to make sure that things are what they should be, coupled with the technology, where things can say, I'm installed correctly, it could be doing these tests, that can go a long way to overcome the need to trust because things are going to be communicating to you, whether they were installed correctly. And that could allow for scaling that we haven't seen before.
Donnel Baird:
That's correct. I'm going to take this podcast and send it to our VCs so they can listen to you explain exactly what we're building, because you said it really well in 20 seconds. Normally it takes me like 30 minutes to try to get it over to them. But that's exactly right. It's that combination of machine learning, audio visual and IoT that allows us to potentially scale this thing up and bring trust and transparency to a hyper fragmented industry, and hopefully, brings scale.
Mike Toffel:
Super. Well, this has been an amazingly wide-ranging conversation. I really appreciate your time. A final question if I could.
Donnel Baird:
Mm-hmm (affirmative).
Mike Toffel:
You came at this, you were a bit in the building industry before you went into your MBA. And then while you're in your MBA, you started this company, raised some money and now are out there working in this space. What advice do you have for MBAs or other folks who are looking to get engaged in the climate space, perhaps from an entrepreneurial perspective as you have? What are the opportunities? What mistakes are folks making that you think, gosh! If they only did X or your own mistakes that you can reflect on, I wish I knew this earlier?
Donnel Baird:
Yeah. One mistake is I didn't take an introduction to Python or intro to computer science class. I also didn't take an intro to product management. I think MBAs, we get trained on project management and that's useful and that's important, particularly for startups that are becoming more mature. But in the early days, product management and understanding the basics of computer science, this is like the major, major, major mistake that I made. And if I could go back and do my MBA, I would make damn sure that I took a few courses on product management and basic coding. I think that's one part of it. And so I think another part of it in terms of the opportunities right now, Silicon Valley is becoming more and more focused on climate. But it's actually a narrow part of climate.
Donnel Baird:
It's actually like the carbon capture component of climate is where VCs are really focused, which means that a lot of the rest of this stuff is wide open for MBAs to come along—as VCs, as angel investors, as operators—to really build up the parts of the climate tech ecosystem that aren't receiving the focus because the best investors know, you don't make money where everybody else is going. You make money by things that work that everyone else didn't see coming. And that's where the maximum value is. And so we are seeing that there is a lot of buzz around climate tech, but a lot of it is around Software as a Service, tools to manage various data flows or workflows and figuring out this moonshot of how to capture carbon from the atmosphere. But the blocking and tackling and the hard operational work of replacing fossil fuel infrastructure in America with clean energy infrastructure, as you know, that is an operations problem.
And it is an opportunity. And I think that the more people who get into this space with that kind of mindset versus, hey, I'm going to add a software application layer on top of somebody else's operations. Sure, you and a thousand other people are going to do that and you're going to compete and fight over margins. But I think solving the hard operational, clean energy infrastructure problems about how we actually shift our economy over to clean energy, we need more MBAs solving those hard problem who can partner with technologists to get this thing going. And so that's what I would encourage people to think about.
Mike Toffel:
Great. Well, Donnel, thank you so much for joining us here on Climate Rising. It's been a wonderful, fascinating conversation.
Donnel Baird:
Yeah. I've really enjoyed talking to you. And I enjoyed the little operations' lesson that you gave me in the middle of it. I'm going to take notes and put it to work. I'm going to email you and harass you for some more advice. But that's great. It was great to be here and super excited to connect.
Mike Toffel:
That was Donnel Baird, founder and CEO of BlocPower.
Thank you for listening. If you like what you hear, please subscribe wherever you get your podcasts, share with your friends, and don’t forget to rate and review.
For show notes, head over to climaterising.org or click on the link in the podcast episode.
You’ve been listening to Climate Rising. I’m your host, Mike Toffel. Kate Zerrenner is our producer, and Craig McDonald is our audio engineer.
We’ll be back in two weeks with another episode of Climate Rising. See you then.
Post a Comment
Comments must be on-topic and civil in tone (with no name calling or personal attacks). Any promotional language or urls will be removed immediately. Your comment may be edited for clarity and length.