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Welcome to Talking New Energy, a podcast from LCP Delta. The new energy experts. In the podcast, we'll be exploring how the energy transition is unfolding across Europe through conversations with guests from the leading edge of the transition.
Hello and welcome to the episode. Today I'm talking with Jannik Schall, co-founder and CPO of 1KOMMA5° the international installer of photovoltaic (PV) and other low-carbon products. 1KOMMA5° has been in the news quite a lot. Many of you will know or know of the company. It's raised €300 million since its inception in 2021. And I'm really excited to be exploring with Jannik some of the stories behind 1KOMMA5° in terms of where it's got to today and where it's going. I'm also joined by my colleague and LCP Delta expert Dina Darshini, who is going to provide expert opinion on how these markets are developing. Hello, Jannik.
Hi, Jon. Happy to be here.
Welcome to the podcast. Thanks for joining and hello, Dina.
Jannik, now 1KOMMA5° is quite young, founded in 2021, but you've been in this space quite a long time, having been part of the management team of Sonnen, and I'm sure most listeners will know of Sonnen from its international PVM battery business acquired by Shell. I like to start with some of the key things you took away from your time at Sonnen, what you learned there, what worked really well, maybe what didn't work quite so well, and how that shaped what you're doing at 1KOMMA5° and the direction you're taking at 1KOMMA5°. So maybe start with some of your learnings and reflections from your time at Sonnen.
When I started at Sonnen, that was in 2015. I would say especially the market on energy storage was pretty premature. So, when I started, they told me their first product generations a couple of years earlier had an amortisation time of 300 years, and they now had cut it down to about 15, which was already quite impressive, but it was still a product that was so difficult to sell and so hard to explain. And I think this is one of the things that changed the most. So, over the last decade or so, the emerge of renewables in general, of EV (Electric Vehicles), of solar and now recently also heat pumps has happened at an incredible speed. And one of the things that we've seen that the market has totally shifted. So, when I started at Sonnen, it was a push market. You had to push the product into the market and explain it over and over again. And by the time I left, we sold our hardware in containers. And the key takeaway from this is that now the challenge shifted to the last mile. It's really about execution.
It's not so much about the general market or the regulatory framework or the technology. As a matter of fact, because technology is there. It's available, its affordable, people want it. There is even support on a political level, on a scale we've never seen before. But the challenge is, how do I get these things installed? Because for all of these systems, solar, heat pumps, EV chargers, you need people, you need electricians, you need roofers, you need heating experts that actually perform the install.
Is there still a sales and marketing challenge and engaging customers? Or is that in a way, yes, you've got to do that, but that doesn't keep you awake at night building a pipeline of new customers. How are you going to sell to them? How are you going to communicate? Is it the installation that keeps you awake? Or is it still both? When you refer to that last mile.
I would say it's both. It's a little bit of both. So last year was a very special year because we saw, especially because of the war in Ukraine, we saw massive demand coming into the market and basically anybody who could offer anything and had product was able to sell. This is now changing. So, the market is becoming again a little more competitive, which is something we like a lot because we thrive on providing differentiation and actually selling our product. But of course, the long-term challenge remains installation, recruiting, roofers, electricians, et cetera, and getting it installed. Yeah.
So would you describe the DNA of 1KOMMA5° as an installation business then, or how would you describe the DNA that you're creating or have created at 1KOMMA5°?
Yes and no. I think installation and also installation companies are an essential part of our DNA because there's a lot of companies in our market, especially the large national players, that start with online sales. They're basically online sales platforms. And then later on, they start looking at solving the problem of installation. We start with local experts, with companies that have been around sometimes for decades and are really focused on high quality technical solutions serving the end consumer. And in that sense, yes, that is our DNA there's also coming back to your first question, a second key takeaway from my time at Sonnen and also something that is very important to our DNA, and that is the potential that comes with connecting decentral assets to create additional value to build virtual power plants to make sure that we do the energy transition not in a stupid way, but in a way that we call actually new solar that is connected and that makes the consumption of energy follow the availability and the production.
So, Sonnen was a little bit of a pioneer in that in some ways. Is that continuing what you learned there? Or would you say there are new elements or new angles or new directions that you're taking 1KOMMA5° in from what Sonnen was doing?
There's one big difference. And this is for me personally, a big relief because it opens up so many new opportunities. A company like Sonnen, and this goes also for other manufacturers in the market. As a manufacturer, you're able to control your own devices, and you can build a virtual power plant that consists of, let's say, Tesla power walls if you're Tesla, or Sonnen batteries if you're Sonnen. But it's very difficult to include third party devices.
They were walled garden approaches.
Yes, mainly. And now we have the opportunity to pick the best products, the best tech that is available in the market and connect it to something meaningful. And I think this is yes, it's a consequential next step, but it's also something new in a sense that we create a broader platform which allows us to do with so much more.
Yeah, okay. And are you able to give listeners a few facts and figures just to bring to life where 1KOMMA5° is at today and where you're at in your growth story?
Absolutely. So, as you said, we were founded in 2021. We're now live in four countries, which are Finland, Sweden, Germany, and Australia. We just announced our market entry into Italy, and very soon more markets will follow. We have acquired close to 30 companies in those markets that are typically the typical installation business is usually the mid-sized ones, a couple of larger ones that really are these experts in their field and operate on a regional level with a strong presence and a high market share in their area. In total, we operate about 40 to 45 locations. We're a little bit more than 1000 people now, growing fast, and we're targeting about 550,000,000 in revenues for 2023.
Great. Thanks, Jannik. And that's very fast growth indeed. A lot of acquiring and a lot of onboarding, I'm sure.
Dina, I'd like to bring you in now and in terms of contextualising, how big let's stick with the photovoltaic markets. Jannik, you mentioned a few different technologies, maybe widen out again in a minute, but looking at residential photovoltaics in Europe, how big is the European residential photovoltaic market? What sort of numbers are we talking about in terms of households per year installing PV across Europe at the moment?
Yeah, I mean, Jannik was absolutely right. So last year we saw demand explode for residential solar PV systems following record high retail energy prices, which we all know. It's linked to the 2021 2022 energy crisis and the release of pent-up demand post Pandemic. So, we saw about 1.8 million households get a solar PV system installation in 2022, and that's up from 1.1 million households in 2021. So, it's a big jump. We believe PV sales actually would have been even higher if it were not for supply chain disruptions and labour shortages, which held the market back from further growth. Again, as Jannik said, that installation capacity, it's constantly playing catch up, but just to give a flavour going forward, unless something big happens again, we're more likely to see modest year on year growth rates out to 2030. So, a Kega of about 5% between 2022 to 2030. So last year was a unique year…
But still hard to predict whether we'll have those unique years again and what events will happen. And in terms of the biggest markets, what are Europe's largest markets? Or is that 1.8 million or fairly evenly spread across markets? Or where would you pick out in terms of the hotspots?
So not only are the markets different in size across Europe, their growth rates, their own PV stories are different out to 2030. So, some markets will continue that sort of steady growth, while others will experience market slumps or stagnate. So, it's important knowing in which market you are if you're trying to invest. But top solar PV markets, in terms of installations, you have the usual suspects. So, Germany, Netherlands, Italy, Poland was a good market. It's going to go probably in decline with some policy shifts. Belgium also was a good market, but again, probably more in the stagnating phase. But there are lots of opportunity in some of the smaller markets, which are now only starting their PV story, let's say. And so, you'll see much bigger growth rates there. But yeah, it's different, but that's why we like it.
Yeah, not uniform across Europe, but bumper year last year and growing market. In terms of players in the market, if I think back to five or ten years ago, I would characterise it as very much a local installer market. Jannik, some of those regional installers you talked about probably started off on a very much more local basis and are grown from there. So, in terms of the market dynamics between the types of companies, I guess what you're doing is consolidating the market to a degree at the moment, through your acquisitions, but I imagine your view is that this market needs consolidating or there's an opportunity to consolidate it. Can you just talk a bit about how you see it consolidating, why you think it needs consolidating? What advantage do you think that brings?
Absolutely. So, I think a consolidation is already happening and has been started already a couple of years ago. So also, large utilities started acquiring installation businesses. And you also see the emerge of these large-scale national players that are more driven from, let's say, online sales perspective. There's three types of players in the market. You've got the small man and the van type of businesses. You got the mid-sized installers and then you have the large national brands, and I think especially the installer in the middle, they see an increasing amount of pressure from both sides because the man and the van is beating them on price and the national players are beating them on online marketing expenses. And at the same time, there's a third category of players moving into the market, which are the manufacturers. So, a lot of manufacturers are also trying to go direct and building a business that doesn't necessarily need their traditional channel to the extent that it was needed ten years ago. So, yes, these players in the middle, they need to form alliances and they need to team up with each other or with any other players, like 1KOMMA5°, that is giving them more power and improving their positioning also towards the manufacturers and their suppliers, but also generally in the market.
Yeah. Okay. And in terms of driving, I guess, driving market growth and a better customer experience, how would you frame it? From the customer angle to the advantage of or the market angle from the advantage of this consolidation?
Yes, absolutely. I think there's a massive opportunity here to improve the customer experience, but there's also a big risk attached because a lot of these large players, they try to do things one size fits all, right? So, they sell the same solution over and over again, and they don't really look at the sites and the rooftops and the basement and the individual needs of the customer.
There's an advantage to selling to that cookie cutter approach because it can drive down cost and price and therefore open-up the.
Absolutely. We believe there's a different john, we believe there's a third way, which we call, let's say scalable. Modularity. With the smaller companies seeing massive growth, as you said, the customer experience declines because they cannot handle the growth. They don't have digital tools; they don't have a CRM. And organising the entire value chain from procurement, consulting the customer on the best possible solution, generating offers and quotes, organising the installation, the planning and doing executing on the physical install along that value chain. Yes, there is a massive potential to improve the processes and be more efficient and also be more affordable.
Yeah. And I guess from what you were saying earlier about virtual power plants, I think the voltage protect market was a very distinct market. So, you had the PV market on one hand, and you had a very different market, which was the energy market. Now those two are increasingly overlapping. So, I don't think you can, or you certainly won't be able to view the PV market as just a product sale and hardware and home improvement market. It needs to operate to get the maximum value out. It needs to operate within the energy market context, which is very difficult for a local installer or mid-size installer to do.
Absolutely. There's so much complexity that comes with that. And I think ten years from now, we will look back and it would seem ridiculous that you would buy different components that are just pieces of equipment that are being installed in your home and operating basically in Silos. Right. So, an EV charger, it operates when the car is plugged in and the heat pump operates when the thermostat is like, now it's a good time. But they don't know there's also solar. They don't know of each other; they don't know there might be a battery. And of course, these devices need to interact with each other. And you mentioned it, they need to interact with the energy market.
Yeah. Dina, you've been looking at how you can segment the market between the different types of companies. Jannik has been talking about what patterns do you see across different countries, or do you see a lot of variation in the way that utilities or energy retailers are getting involved? The development of large players, maybe even pan European players?
Yeah, again, just echoing what Jannik has said as well. If you think about the residential solar PV supplier market, a decade or two ago, it was mainly solar PV installers with basic offerings. So, it's the solar PV equipment and installation and that's it. Right. So fast forward to today and from an offer and value proposition perspective, it's not just PV anymore. We're seeing market players with a wider product portfolio. So, PV, battery, heat pumps, EV charges, and they are evolving into energy system and service providers. So, offering things like maintenance, remote monitoring, insurance, all within a service package as well as finance. So, that is almost levelling up. And on top of that, we're seeing new market entrants coming in. So, we're seeing startups trying to succeed, pursuing models that have one recurring revenue with low churn that are asset light, software driven and highly digitalised operations, and three, they're pursuing fee structures with higher margin opportunities. So, you have this new sort of group of companies coming in and they are thinking big. They won't be content being just a small local installer firm. They will grow nationally and internationally. And when it comes to energy retailers, you already have the likes of E-on, EDP or NLX, Iberdrola and more, who already have a multi country footprint.
So, they're in a strong position to continue to use their wide customer base to push PV or a variety of other offerings. And because they're already multicounty, they can diversify that risk. So yes, there are lots of small installers around, but there is a fair share of other larger market players in place and actually out to 2030. We expect these other players to take up a lot of market share from these small and or mid-sized installer firms.
So, what you both described there, I guess, is an evolving market environment. The ultimate aim is to drive a great customer experience, to share as much value with a customer from the energy market. But it's probably the wrong way to think about it. But would you characterise it as a battle for market share and the pie is fairly fixed and all these companies are battling for a share of the pie? Or are we still really in market creation mode where it's less about battle for market share and all these companies are just helping to grow the pie and grow the pie and grow the pie. Jannik, I don't know if you can pick one or the other or a different analogy, but what would you say?
I think for me it's difficult to see our competitors as real enemies. And I think, yes, in certain markets you sometimes have a fight for market share. But at the end of the day, what we are fighting is fossil fuels. And the point with the renewable energy market and the solar market and the heat pump market and the EV market, these markets have to be better and more affordable and more desirable than a combustion engine car, than a gas heater and then procuring power from, I don't know, just a coal fired plant, et cetera. So, I think the pie is massive. If we want to make all things energy renewable, we need to electrify a lot of processes not only on the residential level, also on an industrial level. And that's the battle we're fighting. If our solutions are better than fossil fuels, the potential for the cake is humongous.
Yeah. And the key things? I'll come to you in a second of your perspective. But Jannik, the key things to access that bigger pie or to move the market in the visionary ways you've talked about. You've mentioned the installation experience, but is that the key thing or what key things would you pick out that you and the industry need to do to unlock all that potential?
No, I think we need to build it's not just that, of course we need to figure that out and we need to make it more scalable, we need to make it easier, we need to make it cheaper. But at the end of the day, we need to build compelling solutions. Right. It's not like from an end consumer perspective, it can never be about who made the solar panels, who made the inverter and what is an inverter, by the way, why do I need it and how do I there's this residual energy need I have like I need to buy from the grid or someone else. This needs to go away in order to make this scalable. We need holistic integrated solutions that are easy to understand. Basically, you need somebody who guides you through decarbonizing all things energy. Right now, there's just fragments of that available. So, we need to guide people through that process. And I think this is going to be key to make this a true mass market.
Come back to that when I ask the crystal, when I bring up the talking new energy crystal ball in a few minutes, Jannik. Dina, in terms of your views on that question, and I know you've looked at some of the ratio of number of PV systems to number of households in different countries. So how do you see this? Do you see it as a still market creation and growing the pie or how much can that pie grow?
Yeah, the pie in itself now is already massive and like we discussed earlier on, it's growing and even with that growth out to 2030, if you think of all the single-family homes out there in Europe, there's a certain proportion that's not technically suitable for whatever reason the roof or it's not facing. Okay, take them out. Even the leftover houses. Of course, these percentages are difference in terms of saturation rates but you're looking at anywhere between 7% to 30% saturation levels of current existing PV markets, right? So, there's still a whole percentage of addressable market out there. So, I think there's enough of a pie for everybody. But again, still within that there will be a race to scale in certain portions of that pie. Like we said, I think there'll be just more consolidation and the smaller local installer firms, or mid-sized firms will get eaten up a little bit. But again, if that overarching goal is to decarbonise get more PVs or other energy systems that can help with that goal onto houses, then we're all winners, aren't we? So yeah, I would agree with Jannik earlier on.
Jannik, I'm going to ask you one more question before bringing up the crystal ball. So, you talked about the guiding people through this and developing propositions. Dina, you mentioned a bit around subscription models, for example. How closely Jannik, do you think the industry is to providing that guidance that seamless customer experience, the easy to access propositions, is that still a lot of work in progress or would you say the industry is really nailing that now?
I think if you look at the industry as a whole, I think we're not even close. What we need to understand is that we're really at the beginning of making solar a mass market and on the residential level and I'm sure there are some examples out there doing a great job, delivering a great customer experience and of course we try very hard. We launched our energy manager Heartbeat that is basically helping a lot with simplifying a lot of things, optimising the value generated also with the energy market integration. But we think, and this is why we're so focused on that, we think this is going to be key and I mean, unfortunately, if you look at the market, the bar is actually quite low.
Dina, what's your view on things like finance or subscription offerings or any other element you want to pick out of how much more work there is to do?
Yeah, there definitely is a lot more work to do but I think in general, just on the finance part, we will slowly move into a world where we don't have to be reliant on subsidies anymore. So, if market players can help with that upfront cost barrier, I think that still helps the market grow because the upfront cost still will be an issue, I think for many households if you're trying to reach that full 100% saturation rate just now, I talked about the addressable market. I think for some households this will still be an issue. So, finance will always play a role, especially as we move away from a subsidy reliant market in general.
With finance, then it's finding the right ways. Is it a subscription offering? Is it do you position it as a lease, do you position it as a deferred payment? There's a whole range of ways to do that.
Yeah, but I think companies, not all of them, but we at least see a growing willingness by more companies to explore these sort of models. So not just taking on the traditional, you just pay for the product upfront, they are exploring it, paying what we would call complex on the inside, simple on the outside model, integrating all costs in a single tariff or recurring fee. I think there is a willingness to explore it to see if it makes sense for their business. But yeah, I think we're still a long way from many companies being able to offer that.
And I think what we have seen is in places like the US, if I remember right, around 30% of residential PV is financed by now company finance companies that just treat this as an infrastructure investment. So, there's certainly no shortage of money from investors looking for a home in the energy transition. And I think there's a huge opportunity for whether it's subscription, lease finance, whatever type of finance for that to flow into solar panels, on roofs, heat pumps in basements wall boxes, on Heartbeat, energy management systems, and more. Okay, let's bring out the talking new energy crystal ball now. And this week I'm going to set the dial to 2028, five years’ time. So, we've fast forwarded Dina and Jannik to 2028. And I'm going to ask you each slightly different questions in your view from the future, both around the types of companies that will be dominating or leading the space we've been talking about. So, Dina, for you, looking back from 2028, what type of companies are the leading companies in terms of selling PV to customers and are they actually, would you say they're PV companies or are they home energy solution companies?
Jannik, for you, slightly different angle to the similar question. So today you'd probably categorise the market into energy retailers, PV installation companies, et cetera. What category would you or how would you describe 1KOMMA5° category in 2028? And what are the biggest challenges that you experienced getting to that position in 2028? So, Dina, first for you, what will the PV sector look like in five years’ time in terms of the types of companies?
Yeah, well, just in general, just to bring back one earlier point. So, I think the supplier market is just going to grow more competitive. So yes, there'll be always these smaller or mid-size installer firms that specialise in PV installation and maybe battery too. So, it'll still be a fragmented supplier’s market. So, I don't think that in itself will just certainly go away. But the point is, in five years’ time, it will be decreasingly, so so it'll be less fragmented because we're already going to see more engagement from energy suppliers. We expect consolidation, mergers, and acquisitions.
Yeah. And we're seeing higher levels of marketing and a broadening of sales channels. So, players thinking creatively and forming partnerships to try and get as much cross selling as possible. So, I guess the point is, even if market players themselves do not take on a broader home energy solutions provider role, they will form partnerships so that the household is still being served in a holistic way. So, I think it's those sorts of companies that will make it so. Yes, there's the energy suppliers, there's the national integrated solar PV companies that are growing massively and can take on a lot more. But I think it's not just that it's not a type of company, it's the type of company that the function they're carrying out. Exactly.
They could have come from an energy retail background. They could have come from a PV installation background. Yeah.
So just keep it client centric, customer centric, and they'll be okay.
Thanks, Dina. Jannik?
Yeah, first of all, I would agree to Dina's statement about the types of companies that are going to be around and of course we hope to be one of them. We believe we will be, let's say, recognisable end, consumer brand type of company. Right. It's not about being a solar installer or an energy retailer or a heat cum company. It's more about, as Dina said, being somebody who can deliver on that, on the entire proposition, and in a way that is easy to understand and that is also basically has the potential to be a status symbol. Right. So, in 2028, I want my customers to be proud to have a one comma, five system, and I mean a lot of them, hopefully already today. And we see that this works, right? That we're moving away from who has the biggest car and the fastest car, more towards who has the best and the most intelligent holistic solution from a desirable brand. And this is exactly where we want to be.
And what's your biggest challenge to getting to that?
What you've just described, one of the challenges everybody in the market is still underestimating is like, the sheer size of the market. And we are only at the beginning of an incredible challenge, right? And yes, we look at markets and she's like, okay, I don't know, Spain moved up a little bit, or another market moved down a little bit, but at the end of the day, it's going to be about millions and millions of homes. And I think this is going to be the challenge to scale this as quickly as possible within the next ten years, because we're really running out. Of time.
My last question, what's the biggest challenge around scaling? What keeps you awake most at night about scaling?
That's a good one. No, I would say look along the value chain. There's lots of things you need to scale, whether it's supply chain, it's where do the resources and the products come from. It's about building software that is able to scale quickly. It's about building tools and processes that can serve thousands, hundreds of thousands and eventually millions of customers. So, I would say there's not one particular challenge, there's a whole bunch of them.
But a lot to get right at the same time.
Yeah, absolutely. And I mean, I think this is what's also so exciting about this industry, that we all are part of this, and we have the opportunity to affect some real change here and again. This market, I believe, is still in its infancy and there's a lot of exciting things that are about to happen.
Well, one person's challenge is another person's opportunity. So, we certainly need companies like yours, Jannik, and the other companies in the market to drive this market forward if we're to reach our carbon targets for European homes in the next years, because there's a huge amount to do. But with that huge opportunity, we better draw it to a close. There try and getting the better of us. But thanks a lot, Dina. Thanks for joining us.
And thanks so much, Jannik.
Thanks for having me.
Thanks always to everyone listening. We hope you found this interesting, learned some new things about the residential PV and home solution space and are maybe inspired by some of the things you heard from Dina and from Jannik today. Thanks very much. Do get in touch with us. If you've got ideas for future episodes, you can email us at firstname.lastname@example.org. Follow our social media platforms. And if you enjoy the podcast, like it and tweet about it or post about it. Thanks very much for everyone for listening and speak to you next week.
If you enjoy the podcast, then please rate it, and share it with your friends and colleagues. If you're as passionate about the energy transition as we are, then you can keep in touch with us and look at our research, insights, podcast, transcripts and download reports all at www.lcpdelta.com.
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