WEBVTT - Heating and Cooling: Heat Pump Revolution! Or is it? 0:00:00.040 --> 0:00:02.360 Hey, anybody, This is Mark Taylor and this is Danda Perkins, 0:00:02.360 --> 0:00:07.400 and you're listening to Switch on the benof podcast. Each 0:00:07.480 --> 0:00:10.400 week we speak with bienn F analysts about the interesting 0:00:10.440 --> 0:00:13.280 research they're working on, and this week we are joined 0:00:13.320 --> 0:00:16.200 by Meredith Annex, who is Bloomberg an EFS head of 0:00:16.280 --> 0:00:20.040 Heating and cooling research. Okay, wait, why do we have 0:00:20.079 --> 0:00:22.319 a head of heating and cooling research. It's actually a 0:00:22.320 --> 0:00:24.880 new thing for us, so it was a gap that 0:00:24.920 --> 0:00:27.040 we needed to fill. And the reason it was a 0:00:27.080 --> 0:00:29.680 gap is that heating and cooling are actually a huge 0:00:29.800 --> 0:00:34.519 part of total energy demand buildings alone account of global 0:00:34.600 --> 0:00:37.600 energy consumption. She's going to speak with us today regarding 0:00:37.680 --> 0:00:40.519 two pieces of research her team has written, the Greening 0:00:40.520 --> 0:00:44.800 of Heat and Decarbonizing US Heat Getting Started. These have 0:00:44.880 --> 0:00:47.239 a lot to do with gas and electricity and what 0:00:47.360 --> 0:00:50.040 options we might have in the future to pivot between 0:00:50.080 --> 0:00:52.880 the two for heating and cooling. Okay, cool. So both 0:00:52.920 --> 0:00:55.080 of these reports are available at benf dot com and 0:00:55.160 --> 0:00:58.160 b NF go on the Bloomberg terminal for our subscribers. 0:00:58.240 --> 0:01:01.120 If you're interested in becoming a BEANF client, reach out 0:01:01.160 --> 0:01:03.640 to us at Sales dot BNF At bloomberg dot net, 0:01:03.760 --> 0:01:06.360 we write about a wide range of topics, including clean energy, 0:01:06.440 --> 0:01:10.320 advanced transport, digital industry, innovative materials, and commodities. Please note 0:01:10.319 --> 0:01:13.039 that Bloombergunny does not provide investment or strategy advice, and 0:01:13.040 --> 0:01:14.440 you can hear a full disclaimer at the end of 0:01:14.440 --> 0:01:18.360 the show. Meredith, thank you for joining us. Hi Dana, Hi, Mark, 0:01:18.480 --> 0:01:20.560 thanks very much for having me such to day. We're 0:01:20.560 --> 0:01:23.000 going to talk about heat because that's what you spend 0:01:23.040 --> 0:01:25.440 pretty much all of your time focused on, isn't it. Yeah, 0:01:25.440 --> 0:01:28.400 pretty much that's new for you, right it is. Yeah. 0:01:28.600 --> 0:01:30.600 I've been at Bania for a number of years now, 0:01:30.640 --> 0:01:33.120 but we only started the team looking at heating and 0:01:33.120 --> 0:01:37.039 cooling at the end of last year because for us, 0:01:37.160 --> 0:01:40.880 it was really about finishing the puzzle pieces around the carbonization. 0:01:41.120 --> 0:01:43.680 If we look around the circled high chart of emissions, 0:01:43.760 --> 0:01:48.240 we understand power at BENIF very well. We're understanding transport 0:01:48.320 --> 0:01:51.160 better and better every single year. Our EV team is great, 0:01:51.240 --> 0:01:54.320 our autonomous driving team is great, but we haven't had 0:01:54.360 --> 0:01:56.200 as good of a picture of our solid picture of 0:01:56.400 --> 0:01:58.960 is buildings and industry. And that's where my team really 0:01:59.000 --> 0:02:01.720 comes in because it comes to building an industrial demand. 0:02:01.760 --> 0:02:03.800 A lot of that has to do with heating and cooling. 0:02:04.600 --> 0:02:07.559 There is a path to decarbonization. You outline this actually 0:02:07.560 --> 0:02:10.239 on a lot of the research that you do, and 0:02:10.480 --> 0:02:12.520 it seems to break down into just three areas. You've 0:02:12.560 --> 0:02:17.000 got electrification, district heating, green gas. Can you explain to 0:02:17.040 --> 0:02:20.040 us what each of those three things actually are. Yeah, 0:02:20.080 --> 0:02:22.840 So when it comes to decarbonizing buildings, what you're looking 0:02:22.880 --> 0:02:26.239 at mostly is space heating and hot water and hot 0:02:26.240 --> 0:02:30.200 water provisions for like your showers or that sort of thing, 0:02:30.520 --> 0:02:32.800 and you need it to be kept at sixty degrees 0:02:32.800 --> 0:02:35.280 celsius at least so that it doesn't grow bacteria. So 0:02:35.320 --> 0:02:37.760 you do need heat to be put into that wherever 0:02:37.840 --> 0:02:41.800 you are in the world now right now, Traditionally we're 0:02:41.919 --> 0:02:45.320 using fossil fuels to provide that heat. Very often around 0:02:45.320 --> 0:02:48.240 the world it's coal gas or oil being provided through 0:02:48.240 --> 0:02:50.720 a boiler or a furnace that is providing this heat 0:02:50.760 --> 0:02:53.560 to your home. When it comes to low carbon heating solutions, 0:02:53.560 --> 0:02:56.160 we do see three pathways, as you said, Dana. So 0:02:56.400 --> 0:03:00.079 one option is electrification um which is the you of 0:03:00.160 --> 0:03:02.799 heat pumps or direct electric heating in order to heat 0:03:02.800 --> 0:03:05.360 your home. What is a heat pump. It's a great question. 0:03:05.919 --> 0:03:07.959 I think a lot of people think that they don't 0:03:08.000 --> 0:03:09.760 know what a heat pump is, but you actually do. 0:03:09.919 --> 0:03:13.120 It's just an air conditioner running in reverse. So if 0:03:13.160 --> 0:03:19.399 you imagine that, I don't have an air conditioner, right, 0:03:19.520 --> 0:03:21.959 So so then we explain it a little bit more. Um, 0:03:22.000 --> 0:03:26.000 as long as you are above absolute zero in the world, 0:03:26.000 --> 0:03:27.840 which we always will be, and if we aren't, we 0:03:27.919 --> 0:03:31.160 got other problems. Uh, You've got latent energy in the 0:03:31.200 --> 0:03:35.360 ambient environment around you. So even at zero degrees celsius, 0:03:35.400 --> 0:03:38.480 there's still energy in the air outside. Even then in 0:03:38.520 --> 0:03:41.680 the ground outside, there's going to be energy. What a 0:03:41.720 --> 0:03:43.840 heat pump does is it sends a refrigerant out there 0:03:43.960 --> 0:03:47.240 and takes in some of that energy by boiling the refrigerant. 0:03:47.600 --> 0:03:50.400 A electric compressor then compresses refrigerant to put even more 0:03:50.480 --> 0:03:52.520 energy in the system, and all that gets released as 0:03:52.560 --> 0:03:56.440 heat into your home. So you are using you're basically 0:03:56.440 --> 0:04:00.560 transferring heat from the ambient environment into your house using 0:04:00.600 --> 0:04:03.640 a very small amount of purchased energy and form of electricity, 0:04:03.840 --> 0:04:05.920 and this means that you have a huge amount of 0:04:05.920 --> 0:04:09.000 efficiency from it. So on average, in Europe we would 0:04:09.000 --> 0:04:11.920 expect that for one kill a lot hour of purchased electricity, 0:04:12.000 --> 0:04:13.920 a heat pump would produce three point five kill a 0:04:13.920 --> 0:04:16.400 watt hours of useful heat in your home. And just 0:04:16.480 --> 0:04:18.719 as a comparison, do either of you guys have gas 0:04:18.720 --> 0:04:21.520 boilers in your home right now? I do, and it's 0:04:21.560 --> 0:04:27.320 broken at the moment. I've got a repairman coming today anyway. So, um, 0:04:27.360 --> 0:04:30.719 in comparison, those gas boilers that you have, for every 0:04:30.760 --> 0:04:33.080 one kill abott hour of gas that they're consuming, they're 0:04:33.080 --> 0:04:36.159 producing around point nine to kill a lot hours of 0:04:36.279 --> 0:04:41.240 useful heat. So you're just you have under efficiency for 0:04:41.279 --> 0:04:43.680 a gas boiler because that's how physics works. But for 0:04:43.680 --> 0:04:45.800 a heat pump, because they take advantage of this latent 0:04:45.880 --> 0:04:49.200 energy in the ambient environment, you can have well over 0:04:50.520 --> 0:04:55.480 in terms of the Yeah, so district heating, what you're 0:04:55.520 --> 0:04:57.880 doing is you're moving hot water around a series of pipe, 0:04:57.880 --> 0:05:00.840 so you've created heat in a centralized look asian or 0:05:01.000 --> 0:05:04.279 semi centralized location. Usually it's a c HP plant. It 0:05:04.360 --> 0:05:07.000 could be like waste heat from a facility, or it 0:05:07.040 --> 0:05:09.360 could be a heat pump, but you're heating hot water 0:05:09.480 --> 0:05:11.719 that's going around pipes, and then you have a heat 0:05:11.760 --> 0:05:14.279 transfer unit in your home that takes some amount of 0:05:14.320 --> 0:05:17.239 that heat into your home and then leaves a slightly 0:05:17.279 --> 0:05:22.040 colder fluid in the pipe afterwards. And then there's green gas. Now, 0:05:22.080 --> 0:05:25.359 what is what what comprises the green gas category? Yeah, 0:05:25.440 --> 0:05:27.960 so we're using green gas as a catch all term 0:05:28.000 --> 0:05:30.560 at BNF because there's no real industry standard for what 0:05:30.560 --> 0:05:34.159 it means. Usually it consists of two or three types 0:05:34.200 --> 0:05:40.560 of things biogas, so biomethane, hydrogen, and synthetic natural gas, 0:05:40.600 --> 0:05:43.719 which would be basically methane molecules, but they're cregated through 0:05:43.760 --> 0:05:47.760 a process like electrolysis. So, of these three, electrification, district 0:05:47.760 --> 0:05:51.360 heating and green gas, which is got the rosiest future 0:05:51.360 --> 0:05:54.800 ahead of it. I think it depends on where you are. Actually, 0:05:55.360 --> 0:05:58.360 it's a very diverse field. Are in if you're lucky 0:05:58.440 --> 0:06:03.880 enough to have historic legacy district heating, that's really fortunate 0:06:03.880 --> 0:06:08.800 when it comes to the carbonization because it's relatively straightforward. Iceland, yeah, 0:06:08.920 --> 0:06:11.440 or or Denmark is usually the example that you would hear. 0:06:11.760 --> 0:06:15.800 Um District heating is source agnostic as long as it's 0:06:15.839 --> 0:06:19.400 operating within a certain temperature range um and that means 0:06:19.440 --> 0:06:22.440 that you can replace that c HP plant with lookhard 0:06:22.440 --> 0:06:25.000 and sources in a pretty stat foremanner. You have to 0:06:25.000 --> 0:06:28.320 do some digitalization, you have to do some some optimization 0:06:28.400 --> 0:06:31.400 of the facility, but you can do it everywhere else. 0:06:31.680 --> 0:06:35.520 It's kind of an open field about whether it's going 0:06:35.560 --> 0:06:38.560 to be green gas or electrification. And it's kind of 0:06:38.600 --> 0:06:41.159 the battle that we're seeing in most countries regardless of 0:06:41.160 --> 0:06:43.720 whether they've got a strong gas grid or not today. 0:06:44.120 --> 0:06:46.400 So the rosy future kind of depends on the drive 0:06:46.440 --> 0:06:50.000 for it. Absolutely yeah, And at the moment, policy is 0:06:50.040 --> 0:06:52.560 going to be a big determinating factor about where we 0:06:52.640 --> 0:06:57.080 see the growth opportunities today. The story in the US 0:06:57.160 --> 0:07:00.440 is a little bit different than the story in Europe. 0:07:00.640 --> 0:07:03.440 Looking specifically at the States, you identify the fact that 0:07:03.520 --> 0:07:06.240 in the South it might be more appealing to actually 0:07:06.360 --> 0:07:11.240 have some of these electrification solutions. Why why is a 0:07:11.240 --> 0:07:13.880 great question. So the South has a couple of things 0:07:13.920 --> 0:07:16.520 working in its favor. The biggest one is mild weather. 0:07:16.720 --> 0:07:19.560 If you're imagining that heat pump again and it's taking 0:07:19.600 --> 0:07:22.040 let's say it's an air source heat pumps, so it 0:07:22.160 --> 0:07:24.680 is that means that it's sourcing its heat from the 0:07:24.720 --> 0:07:30.040 ambient air outside. What matters for its effectiveness at moving 0:07:30.200 --> 0:07:32.880 heat from the outside into your home is the temperature 0:07:32.880 --> 0:07:36.240 differential between your home and the outside. So if I'm 0:07:36.280 --> 0:07:38.840 trying to move the water going around your radiators or 0:07:38.840 --> 0:07:40.560 the air coming out of your air ducts, depending on 0:07:40.600 --> 0:07:43.000 what type of system you've got in your house, is 0:07:43.000 --> 0:07:46.480 going to be somewhere around thirty five to seventy five 0:07:46.720 --> 0:07:51.840 degrees celsius and that temperature differential, So getting the ambient 0:07:51.840 --> 0:07:54.920 air outside up to that temperature is what the heat 0:07:54.960 --> 0:07:57.480 pump has to do, and that determines how much electricity 0:07:57.480 --> 0:08:00.320 work you have to put into the system. So if 0:08:00.360 --> 0:08:03.440 you're starting from a point like in a cold climate 0:08:03.680 --> 0:08:07.160 where it can easily be below zero or negative five 0:08:07.160 --> 0:08:10.640 degrees celsius, that's a bigger temperature that you have to 0:08:10.840 --> 0:08:14.600 work over. And as we all probably know from just 0:08:14.720 --> 0:08:17.600 life experiences, temperature doesn't like to move from a low 0:08:17.640 --> 0:08:19.040 spot to a high spot. It likes to move the 0:08:19.120 --> 0:08:21.920 other way. So you're working against nature in that sense. 0:08:22.000 --> 0:08:24.040 You know, you're adding work to the system through the 0:08:24.040 --> 0:08:27.280 electricity purchase. So the electrical demand is what's driving the 0:08:27.320 --> 0:08:30.800 class competitiveness. Then in these different geographies, half of it 0:08:30.920 --> 0:08:33.000 so this is half the story. So half the story 0:08:33.200 --> 0:08:36.480 is that because the winters are more mild and more 0:08:36.640 --> 0:08:39.320 days are more mild in the South, you're always going 0:08:39.360 --> 0:08:41.400 to have a higher efficiency for your system because the 0:08:41.440 --> 0:08:43.840 system has to work less hard. The other half of 0:08:43.880 --> 0:08:46.040 the story, though, has to do with cooling, which is 0:08:46.080 --> 0:08:49.640 the other half of my team's focus, and that's the 0:08:49.720 --> 0:08:53.280 reverse air conditioner exactly, or the reverse heat pump as 0:08:53.280 --> 0:08:56.040 you will in this context. So a heat pump can 0:08:56.120 --> 0:08:58.320 work both ways. You need to add a fan maybe, 0:08:58.360 --> 0:09:00.360 but you know it can work both ways. As long 0:09:00.360 --> 0:09:02.480 as that's the case, you basically get too for the 0:09:02.480 --> 0:09:05.040 price of one in terms of your upfront cost. And 0:09:05.120 --> 0:09:07.440 that's a huge deal because heat pumps have a very 0:09:07.520 --> 0:09:10.520 high upfront cost When you compare them to a traditional 0:09:11.040 --> 0:09:14.079 gas system, whether it's a furnace in the US or 0:09:14.080 --> 0:09:16.880 a boiler in Europe. Uh, they're usually out of the 0:09:16.920 --> 0:09:19.520 money in terms of upfront costs, and that puts off 0:09:19.559 --> 0:09:22.160 a lot of potential buyers. When you then add in 0:09:22.200 --> 0:09:25.160 the price of an air conditioning system. Now in the 0:09:25.160 --> 0:09:27.160 southern US, you're looking at not just the cost of 0:09:27.160 --> 0:09:29.480 a gas furnace, you're also looking at a gas furnace 0:09:29.600 --> 0:09:33.120 and as some sort of central air conditioning system. Instead 0:09:33.160 --> 0:09:35.440 of getting both of those separate systems, you could just 0:09:35.480 --> 0:09:37.600 get a heat pump, and all of a sudden, heat 0:09:37.600 --> 0:09:40.560 pumps start to look really cost effective, both an upfront 0:09:40.559 --> 0:09:43.319 cost and operational costs, you know. And just an in 0:09:43.360 --> 0:09:46.839 personal interest, just been hearing about the northern US and 0:09:46.960 --> 0:09:51.599 specifically in New York the company Dandelion from Google, So 0:09:51.640 --> 0:09:53.240 I have two questions about that, and that could help 0:09:53.280 --> 0:09:55.800 us dip into the players in this in this space 0:09:55.880 --> 0:09:59.000 as well and into retro for versus new build. But 0:09:59.000 --> 0:10:01.280 what I've heard from about them is, well, first can 0:10:01.320 --> 0:10:03.760 clarifies that district heating your heat pumps. It's heat pumps, 0:10:04.360 --> 0:10:07.760 and they're specifically ground source heat pumps. So they're looking 0:10:07.800 --> 0:10:10.520 instead of using the air as their ambient environment, they're 0:10:10.600 --> 0:10:13.400 using ground so the soil. Okay. I was a bit 0:10:13.440 --> 0:10:16.000 dubious about it when I first heard of their venture, 0:10:16.080 --> 0:10:17.840 but it sounds like I got it wrong. It sounds 0:10:17.840 --> 0:10:19.680 like they're kind of killing it. What is interesting to 0:10:19.679 --> 0:10:22.640 me what I've heard is basically that they're putting these 0:10:22.679 --> 0:10:26.199 into new developments, right so new communities, new build homes, 0:10:26.400 --> 0:10:28.600 and using it as a marketing tool to bring people 0:10:28.600 --> 0:10:31.320 to these new communities, right, so they'll say, hey, you know, 0:10:31.400 --> 0:10:33.480 come to this new community where you're heating and cooling 0:10:33.480 --> 0:10:37.199 costs basically zero and people are moving to these these 0:10:37.240 --> 0:10:40.240 new homes. So is that we're gonna be seeing in 0:10:40.240 --> 0:10:42.960 this space more and more? What's the future there? Well, 0:10:43.040 --> 0:10:45.439 So we are actually working on a case study right 0:10:45.480 --> 0:10:49.040 now that's looking specifically at Dandelion's business model. I didn't 0:10:49.040 --> 0:10:51.559 know that beforehand, folks, I know that was a perfect plug. 0:10:52.040 --> 0:10:55.600 So Uh. An analyst on my team, em A Coker, 0:10:55.840 --> 0:10:57.920 is currently working on that report. Should be on in 0:10:57.960 --> 0:11:00.320 a couple of weeks. Very exciting to have the chance 0:11:00.360 --> 0:11:04.240 to plug it in here. Uh. And Dandeliane is really cool. Uh. 0:11:04.280 --> 0:11:07.960 My understanding is that they do retrofits as well as 0:11:07.960 --> 0:11:11.640 honestly is just what I hear. Literally, the thing that 0:11:11.679 --> 0:11:14.760 there's a couple pieces to unpack there specifically within Dandelion, 0:11:14.800 --> 0:11:17.240 And the thing that we find really innovative about Dandelion, 0:11:17.280 --> 0:11:20.960 aside from the way they're working to modularize the way 0:11:21.000 --> 0:11:24.760 that they do ground source heat pumps, is um the 0:11:24.840 --> 0:11:29.160 financing model that they provide, so they're providing private sector 0:11:29.280 --> 0:11:32.880 loans that you pay off over twenty years in order 0:11:33.160 --> 0:11:36.440 to reduce the upfront cost of a ground source heat pump, 0:11:36.880 --> 0:11:40.520 and that can remove that barrier. Because these systems can 0:11:40.600 --> 0:11:44.200 be eight thousand dollars equivalent in Europe a ground source 0:11:44.240 --> 0:11:47.480 heat pump, you're talking closer to fifteen sixteen thousand dollars 0:11:47.480 --> 0:11:49.840 in Europe. These are a huge cost to take. So 0:11:49.840 --> 0:11:52.559 if you can remove the upfront cost, then you're great. 0:11:53.000 --> 0:11:56.679 The biggest thing, though, that you're pointing on is about 0:11:57.160 --> 0:11:59.600 why a new billing would be going for them, And 0:11:59.640 --> 0:12:02.280 actually this is something that we're seeing across the board, 0:12:02.280 --> 0:12:06.160 not just with Dandelion. Across the board, heat pump sales 0:12:06.280 --> 0:12:11.440 are stronger, probably and often driven by new builds. So 0:12:11.640 --> 0:12:15.360 um in the southern US you could have six depending 0:12:15.400 --> 0:12:17.760 on where you are in terms of census region of 0:12:17.880 --> 0:12:21.079 new build homes that are opting for heat pumps instead 0:12:21.080 --> 0:12:25.880 of any other heating system at all. And the US 0:12:25.920 --> 0:12:29.440 on average new builds have a heat pump instead of 0:12:29.440 --> 0:12:31.440 any other type of heating system at all. This is 0:12:31.440 --> 0:12:33.920 not a particularly new business model because we've actually seen 0:12:33.960 --> 0:12:38.440 this in the solar industry, where I'm hearing comparable upfront 0:12:38.480 --> 0:12:41.560 costs and My question really is are the payback periods 0:12:41.800 --> 0:12:46.079 in terms of equal or roughly the same. So that's 0:12:46.080 --> 0:12:48.840 something we're also working on for this summer, because they're 0:12:48.840 --> 0:12:52.480 doing a great job hitching my pipeline um. In terms 0:12:52.559 --> 0:12:55.520 of how it works compared to solar, they're both very 0:12:55.520 --> 0:12:57.440 similar in terms of a high upfront cost that you 0:12:57.520 --> 0:13:00.760 earn back over their operational lifespan. The way that tends 0:13:00.760 --> 0:13:03.760 to work in solar is that you're reducing your electricity bill. 0:13:04.200 --> 0:13:06.240 The way that that works with heat pump is that 0:13:06.280 --> 0:13:09.960 you're using less fuel total than you would have with 0:13:10.040 --> 0:13:12.320 your other system. And so what you have to look 0:13:12.320 --> 0:13:14.520 at is the ratio between the electricity price and the 0:13:14.559 --> 0:13:17.520 gas price and the efficiency of each of your heating system. 0:13:17.520 --> 0:13:20.960 So it's a bit more completely complicated of a calculation 0:13:21.040 --> 0:13:23.560 to do than first solar, which makes it a little 0:13:23.559 --> 0:13:26.920 bit harder, I think for the average homeowner. But with 0:13:27.000 --> 0:13:29.240 a new build home, you're almost always going to be 0:13:29.320 --> 0:13:33.240 having a lower operating cost um and that's usually what 0:13:33.320 --> 0:13:35.560 a new bill developers worried about. They're less worried about 0:13:35.559 --> 0:13:37.439 the upfront cost of the system, They're more worried about 0:13:38.120 --> 0:13:42.040 the lifespan of this building. And how operational costs are 0:13:42.040 --> 0:13:45.480 going to be affecting the future tenants or future buyers 0:13:45.520 --> 0:13:49.320 over time, because having a home that's new with lower 0:13:49.400 --> 0:13:52.880 energy bills is more attractive from a bious perspective. Well, 0:13:52.920 --> 0:13:54.560 I guess the difference is you're going to need a 0:13:54.559 --> 0:13:57.080 heating and cooling system in a home regardless, but the 0:13:57.120 --> 0:14:00.280 solar panels seem to be fairly optional because you've got 0:14:00.320 --> 0:14:03.640 the grid connection exactly and on that. Actually, let me 0:14:03.679 --> 0:14:05.680 ask you guys a question. Do you know off the 0:14:05.679 --> 0:14:08.800 top of your head what the hence per kill a 0:14:08.800 --> 0:14:11.200 watt hour is? Because we're in the UK for the 0:14:11.200 --> 0:14:13.760 electricity that you buy versus the gas that you buy, 0:14:13.800 --> 0:14:17.199 I gotta go well, and this is the thing most 0:14:17.240 --> 0:14:20.600 people don't write, so most people aren't thinking about this. 0:14:21.080 --> 0:14:23.720 But depending on where you are, that ratio could be 0:14:23.760 --> 0:14:26.280 really high or really low. In the UK, actually the 0:14:26.360 --> 0:14:29.080 ratio is really off putting for a heat pump, usually 0:14:29.440 --> 0:14:31.800 because you're probably paying I think the average in the 0:14:31.880 --> 0:14:33.720 UK is about sixteen pence per kill a lot hour 0:14:33.800 --> 0:14:36.240 on electricity compared to eight pence per kill a wat 0:14:36.240 --> 0:14:39.080 hour on your gas. So you would need a very 0:14:39.120 --> 0:14:41.000 efficient heat pump to make up worth your while in 0:14:41.080 --> 0:14:43.640 terms of operating costs? Can we go back to policy 0:14:43.680 --> 0:14:46.240 though in that vein? Is there going to be a 0:14:46.280 --> 0:14:50.080 time where I'm going to be forced to retrofit my 0:14:50.080 --> 0:14:52.320 my house? You know? Regardless am I in trouble in 0:14:52.320 --> 0:14:54.560 in UK or anywhere else? Maybe in the UK more 0:14:54.600 --> 0:14:57.880 than anywhere else. Uh So this is a really like 0:14:58.440 --> 0:15:00.920 you hit on a really serious, Paul, the point that 0:15:00.920 --> 0:15:03.560 that governments are thinking about today, Like, honestly, this is 0:15:03.600 --> 0:15:06.120 a core part of the Net zero report in the 0:15:06.200 --> 0:15:08.880 UK is trying to decide how we're going to incentivize 0:15:08.880 --> 0:15:12.920 this transition. Historically, the way that incentives for heat pumps 0:15:12.920 --> 0:15:15.920 of work has been very similar to solar. You get 0:15:15.960 --> 0:15:18.360 a subsidy for the upfront cost, or you get a 0:15:18.400 --> 0:15:21.320 subsidized tariff for the electricity consumed by that system, which 0:15:21.320 --> 0:15:23.240 would be the equivalent maybe of an export tariff for 0:15:23.280 --> 0:15:25.160 the solar, and that's the way that you would earn 0:15:25.200 --> 0:15:28.000 it back. So it's all financial mechanisms that are driving 0:15:28.040 --> 0:15:30.640 these markets forward right now. What the Committee of Climate 0:15:30.680 --> 0:15:33.960 Change report is saying is basically is that the best 0:15:34.000 --> 0:15:38.000 way to go, Because there's a couple of problems with that. 0:15:38.120 --> 0:15:40.120 First of all in the UK, it hasn't actually led 0:15:40.160 --> 0:15:43.840 to a dramatic rise in the optake of low carbon heating. 0:15:43.960 --> 0:15:47.920 But also there's a big concern around governments about the 0:15:47.960 --> 0:15:50.560 social costs here because as you get to poor and 0:15:50.640 --> 0:15:53.400 poorer communities, a larger portion of their income is being 0:15:53.440 --> 0:15:57.120 taken up by energy bills. So should you be offering 0:15:57.480 --> 0:16:01.000 financial attentives, should you be offering standards and then paying 0:16:01.040 --> 0:16:06.320 for those through kind of a national tax program. That's 0:16:06.400 --> 0:16:08.600 kind of the ongoing question. So how do you remove 0:16:08.720 --> 0:16:12.920 the financial barriers and burden from the individual and what 0:16:13.080 --> 0:16:15.320 do you get a bigger chunk of the change if 0:16:15.360 --> 0:16:18.560 you went for commercial first, No, because commercial there's fewer 0:16:18.560 --> 0:16:22.960 commercial buildings, and commercial buildings use heat differently, right, so 0:16:23.200 --> 0:16:27.440 you have more space heating in commercial buildings, but or 0:16:27.520 --> 0:16:30.440 space coin depending um on on the type of building 0:16:30.440 --> 0:16:33.320 that you're in. For instance, in Bloomberg, we've got a 0:16:33.360 --> 0:16:35.960 lot of servers in our building, so really all that 0:16:36.000 --> 0:16:38.280 we have to do is cool the building because we 0:16:38.320 --> 0:16:41.680 get passive heat provided by most of our servers. Um 0:16:41.880 --> 0:16:44.360 So it gets a lot more complicated. But you don't 0:16:44.400 --> 0:16:47.320 have hot water, which around the world tends to be 0:16:47.360 --> 0:16:51.240 the biggest source overall, because if you think about milder climates, 0:16:51.600 --> 0:16:54.280 especially developing countries, you don't really need space heating. You 0:16:54.360 --> 0:16:57.640 do need hot water. That's not an issue in commercial buildings. 0:16:58.000 --> 0:17:01.560 So commercial buildings also have a challenge be has Generally speaking, 0:17:01.600 --> 0:17:05.760 retrofits are more complicated with a low carbon system, and 0:17:05.760 --> 0:17:08.800 and that has to do with basically the output temperature 0:17:08.840 --> 0:17:10.880 the system and how fast you can eat your heat 0:17:11.000 --> 0:17:13.440 your building and how much of a what's called a 0:17:13.520 --> 0:17:15.439 U loss a heat loss coming out of the buildings, 0:17:15.600 --> 0:17:18.320 like a load of factors that affect this. But if 0:17:18.359 --> 0:17:20.320 you're going to have to retrofit your building in order 0:17:20.359 --> 0:17:22.040 to have a low carbon heating system, that's harder to 0:17:22.040 --> 0:17:23.600 do for an office space that it is for a home. 0:17:24.200 --> 0:17:26.800 So you need to do both. You need to address both, 0:17:27.160 --> 0:17:29.200 but there's probably different ways that you get to both. 0:17:29.520 --> 0:17:34.159 The UK is often looking at using tendency agreements and 0:17:34.200 --> 0:17:36.760 mortgage agreements as a way to do this. So commercial 0:17:36.840 --> 0:17:39.760 buildings in the UK, it's either a current policy or 0:17:39.840 --> 0:17:43.159 soon to be that if you're building has a energy 0:17:43.320 --> 0:17:47.119 performance rating EPC code below an F you're not going 0:17:47.119 --> 0:17:50.639 to really be able to resell that kind of commercial building. 0:17:50.920 --> 0:17:52.639 What they're talking about is looking at the same thing 0:17:52.680 --> 0:17:56.800 the tendency laws. So in a right private building, potentially 0:17:56.800 --> 0:18:00.280 saying that okay, you can't wint out this building if 0:18:00.320 --> 0:18:05.320 it's below you know, be or whatever on the EPC rating, 0:18:05.320 --> 0:18:07.679 which is the energy efficiency ratings here in Europe. And 0:18:07.720 --> 0:18:08.800 so that could be a way that you do with 0:18:08.880 --> 0:18:11.840 your standards, which kind of takes the financial question out 0:18:11.840 --> 0:18:13.560 of the hands of the individual buyer, but you do 0:18:13.640 --> 0:18:15.520 have to find a way to fund that. From a 0:18:15.560 --> 0:18:18.359 decarbonization standpoint, Let's say you've got this finite pot of 0:18:18.400 --> 0:18:20.480 money and you want to spend it on solar or 0:18:21.240 --> 0:18:24.920 on your heat renovating your heat system. Which one is 0:18:24.920 --> 0:18:26.600 going to give you more bang for your buck in 0:18:26.720 --> 0:18:30.119 terms of decarbonization, it depends on the carbon content of 0:18:30.160 --> 0:18:32.480 your electricity credit because right now, if your electricity grid 0:18:32.560 --> 0:18:35.320 is mostly coal, then you know coal's got the highest 0:18:35.359 --> 0:18:38.000 carbon intensity of any of these In electrifying your heating 0:18:38.000 --> 0:18:41.440 systems doing no good because you're now switching to coal 0:18:41.480 --> 0:18:44.920 instead of gas essentially too like really generalize, but if 0:18:44.960 --> 0:18:47.280 you're in a region, and this is why we put 0:18:47.320 --> 0:18:49.960 electrification as one of the pathways to decarbonization. If you're 0:18:49.960 --> 0:18:52.960 looking at a country where the grid is carbonized, then 0:18:53.280 --> 0:18:56.159 your electricity isn't the issue. The issues you're heating At 0:18:56.160 --> 0:19:00.439 that point, Can we go back to the players for 0:19:00.440 --> 0:19:02.639 a minute. Is this the startup play like Dandelion or 0:19:02.640 --> 0:19:05.040 are we going to see bigger names? You know, familiar 0:19:05.160 --> 0:19:07.959 names come into the space right now. There's kind of 0:19:08.000 --> 0:19:12.520 like the big five heat pump companies always a big five. Um, 0:19:13.000 --> 0:19:15.159 I'm not entirely clear on who's in the list of 0:19:15.160 --> 0:19:16.640 the Big five, but you always hear the big five. 0:19:17.800 --> 0:19:19.960 But it's it's going to be your typical like Mitzubig 0:19:20.080 --> 0:19:24.440 Electric di can the big makers of air conditioners are 0:19:24.480 --> 0:19:27.480 the big players in heat pops? Are they also the installers? 0:19:27.480 --> 0:19:30.159 Do they have installing installations? Installers tend to be very 0:19:30.240 --> 0:19:32.600 much like solar, where it is going to be mom 0:19:32.600 --> 0:19:35.080 and pop bands doing the installation. A lot of these 0:19:35.119 --> 0:19:38.240 companies will run training program because installations complicated with a 0:19:38.320 --> 0:19:40.399 heat pump, and so you need to make sure that 0:19:40.440 --> 0:19:44.200 someone's installing it properly otherwise it doesn't work. Um, but 0:19:44.200 --> 0:19:46.720 but it'll still usually be a mom and pop shop 0:19:46.760 --> 0:19:50.400 that's doing the installation. That said, there are smaller players 0:19:50.400 --> 0:19:53.040 in this space as well, like the Dandellions of the 0:19:53.040 --> 0:19:56.120 world who are doing innovation right now. There's a lot 0:19:56.119 --> 0:19:58.919 of lack of transparency around the heat pump space, and 0:19:58.960 --> 0:20:02.680 that allows room for a lot of players, a lot 0:20:02.720 --> 0:20:06.879 of distributed players, a lot of different types of design, 0:20:06.960 --> 0:20:10.000 the business models that may or may not be fully 0:20:10.000 --> 0:20:12.680 competitive with each other because people just have a lack 0:20:12.680 --> 0:20:15.199 of information to do that comparison. So there's space for 0:20:15.240 --> 0:20:18.800 new entrants, yeah, and consolidation. What we're expecting is that 0:20:19.040 --> 0:20:21.679 as these sectors continue to grow, and we've been seeing 0:20:21.760 --> 0:20:25.160 some pretty remarkable growth rates for heat pumps in recent 0:20:25.240 --> 0:20:27.600