The Heat is On: What We Need to Deploy Millions of Heat Pumps in Europe

by Martin Collignon, Co-founder and CEO at Lun

Feb 29, 2024

Heat pumps are far from being the new kids on the energy block. They have been silently operating in our fridges and air conditioners for years. Their efficiency is almost magical: for every unit of energy they consume, they give 3-4 times as much back in heat. Yet it’s only recently that they’ve grown from a discussion between energy nerds and heating specialists to a political hot potato. As Europe (and the world) leaps towards carbon neutrality, heat pumps stand as one of the cornerstones of this transformation, overshadowing other technologies like rooftop PVs and electric vehicle chargers in projected annual installation rates by 2030.

In Europe, a staggering 12% of carbon emissions stem from boilers used in more than 100 million homes. Whether in large scale through district heating networks or decentralized to heat the tens of millions of single-family homes, we need to massively step up their deployment.

Creating a Market for Change

Market creation is step one. Bill Gates talks about the 'green premium' – the idea that people won't buy into green technology unless it's worth it. Let's not sugarcoat it: heat pumps come with their share of issues. They're louder, bulkier, and costlier upfront compared to their boiler counterparts. In (too) many areas around the world, the massive direct and indirect subsidies towards fossil fuels and hefty taxation on electricity still makes running a boiler cheaper than operating a heat pump.

A cocktail of policies is likely to be needed to tip the scales: removal of subsidies towards fossil fuels, carbon pricing, reduction of levies and taxes on electricity, and to get an immediate and permanent boost, a ban on new boiler installations. When that happens, it’s like magic: the Netherlands is a prime example of a combination of policies triggering a market boom. And things are luckily moving in that direction: The European Performance of Buildings Directive (EPBD) that passed in December is setting a goal that by 2040, fossil fuels should have no place in heating our buildings. If politics aligns with logic, no new boiler should be installed across Europe starting now, given their 20-year lifespan.

EVs, PVs, and batteries have shown us that markets can pivot quickly. Heat pumps are next in line for this market revolution. We already got a glimpse of it last year when natural gas prices shocked European homeowners, but it will be mostly up to voters and politicians to get the final wave rolling.

Supply, Meet Demand

With the market set, the supply side will need to hustle to keep up. Many billions are being invested in heat pump manufacturing in Europe (this won’t be the problem), but there's a snag – the labor force. Electricians and plumbers, often from an older demographic, are in very short supply and reluctant to learn new tricks. But when the incentives align, there are a large number of boiler installers that can be relatively quickly trained: trade schools, heat pump manufacturers, skilled labor associations are all on the ball. There are examples of startups like Forge, La Solive or Smalt who are playing important roles in scaling these initiatives.

While the industry will need fresh blood and a lot of upskilling, it is unlikely to be enough. We will also need to make the heat pump installers that we already have and will have in the future a lot more efficient.

Arming the Masses

It is difficult to make heat pump installers more efficient than they currently are. An important factor is that the heating industry is a mosaic of small players. The largest gas boiler installer in Germany commands a mere 2% market share. Most construction firms in Europe have fewer than ten employees. This fragmentation is likely to persist; unlike the rooftop solar industry where a completely new industry spun out of almost nowhere, tradespeople have been dealing with heating forever. For us to hit our climate objectives, everyone needs to pitch in.

Efficiency improvement is also made more difficult by the fact that the installation of a heat pump involves an orchestra of stakeholders: tradespeople with different skills, energy consultants, governments, financial institutions, utilities, wholesalers, and manufacturers. Each plays a vital role in the journey from inception to installation.

The Role of Software

Enter software. It's set to be the maestro, orchestrating every step to ensure efficiency and profitability. It will transform heat pump installation from a logistical nightmare into a more appealing job than refurbishing kitchens and bathrooms or god forbid, installing yet another boiler. As an example, an average German plumber or electrician is spending 40% of his heat pump job on everything else than installing the heat pump - European governments do love their paperwork and bureaucracy. Software can help installers focus on what they do best, trained for and what brings in the revenue - and let the algorithm do the bits that they dislike and are not great at. A word of caution though: building software for tradespeople is not a piece of cake. Many of them have started to digitize their operations over the last years (COVID-19 was a big factor), but they are a demanding audience that require tools that work with the reliability of a hammer - a difficult feat for startups that want to launch barebones MVPs.

Startups and larger players across the globe are already building the bricks for a smoother process with software:

Startups like Cloover are making it easy for installers to lease a heat pump instead of selling one.
Renolib in France is making it incredibly easy for installers to get subsidies approved.
Governments like in Denmark are opening up data that make it possible to understand buildings without having to be there in person.
Arcadia and UtilityAPI are allowing companies in the US to obtain energy consumption data with a few clicks (hit us up if you’re doing this in Germany!)
Electricity Maps is making carbon intensity of electricity ubiquitous.
Companies like Enode, Kapacity.io and Planet Devices are making it easier for anyone to connect to their heat pumps.
Wholesalers and merchants are getting real-time about prices and inventory.
Tech giants like Apple and Google are offering APIs and tools for spatial and energy data analysis like Roomplan API and Google Maps Platform Solar API.

But we realized that tradespeople don't need a dozen more apps on their phone; they need one single app - and they certainly don’t need to code. A single, unified platform – a heat pump installation command center that handles everything from lead generation to monitoring and servicing is what we hear them crave.

The All-in-One Software Imperative

This brings us to the crux of the matter. An all-in-one software isn't a luxury; it's an imperative. Installers are the foot soldiers in our war against carbon emissions, and we need to arm them appropriately. With a command center, they can manage the end-to-end process, making each installation a success story.

Imagine a future where installing a heat pump is as routine as replacing a boiler. Where the sound of a heat pump starting up is a signal of comfort, not a call to arms for emergency repairs.

The right platform will streamline the workflow, reduce errors, and ensure that installations, regardless of heat pump model chosen, can withstand the first frost without a hitch - a decisive moment that will determine whether an installation will be profitable or not. More importantly, it will make the business of heat pumps profitable for even the smallest players. This profitability is crucial because, without it, the uptake of heat pumps will stall, and our climate targets will remain out of reach.

This platform is what we’re excited to be building at Lun. After launching in Denmark, we’re now moving to the largest heating market in Europe (Germany), and we’re hiring! If you have thoughts on the heat pump installation market in Europe or would like to share your experience - don’t hesitate to reach out!

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