WEBVTT 1 00:00:07.759 --> 00:00:10.000 You are listening to Redefining Energy. 2 00:00:10.640 --> 00:00:12.320 Your co hosts from. 3 00:00:12.240 --> 00:00:16.239 Berlin Gerard Reed and from London Laurent Sagalan. 4 00:00:17.039 --> 00:00:20.719 Today on Redefining Energy, we're going to talk about residential 5 00:00:21.079 --> 00:00:21.920 energy solutions. 6 00:00:23.079 --> 00:00:26.800 Yes, job, there's been a lot of startups initiative around 7 00:00:26.920 --> 00:00:29.800 how to put the solar batteries in the home. The 8 00:00:29.879 --> 00:00:32.840 difficulty is really to scale and I think our guest 9 00:00:32.880 --> 00:00:33.960 has cragged the code. 10 00:00:34.439 --> 00:00:37.399 Yeah, I'm really looking forward to Simon Field coming on 11 00:00:37.439 --> 00:00:40.200 the show. I met Simon ten years ago when he 12 00:00:40.240 --> 00:00:41.880 was about to sell his business up and he reached 13 00:00:41.880 --> 00:00:44.520 out to me and we become friends over this period 14 00:00:44.560 --> 00:00:46.799 of time, you know, and he's developed a very interesting 15 00:00:46.840 --> 00:00:47.880 business in the ukme Rock. 16 00:00:48.439 --> 00:00:51.159 So his business is called houm Tree and home Tree 17 00:00:51.240 --> 00:00:55.719 is a company that offers customer home emergency breakdown insurance, 18 00:00:56.119 --> 00:01:00.960 installation and financing for energy efficient hardware. Let's listen to 19 00:01:01.079 --> 00:01:02.560 Simon Simon. 20 00:01:02.759 --> 00:01:05.599 Welcome to the show, Laurent Jared, thank you very much 21 00:01:05.599 --> 00:01:08.680 for having me. Simon. It's great to actually have you 22 00:01:08.719 --> 00:01:09.159 on the show. 23 00:01:09.280 --> 00:01:12.040 And I think back when we met ten years ago, 24 00:01:12.200 --> 00:01:15.480 you wanted to set up a business and residential energy 25 00:01:16.000 --> 00:01:18.040 and I'd love to actually start with that and just 26 00:01:18.239 --> 00:01:20.319 talk about what you've seen over the last decade. 27 00:01:20.959 --> 00:01:23.480 Well, thanks Jared that it's quite a nice opportunity to 28 00:01:23.519 --> 00:01:27.359 come on to your podcast because you were probably amongst 29 00:01:27.359 --> 00:01:30.239 the first people I met in the energy ecosystem over 30 00:01:30.280 --> 00:01:33.120 ten years ago who I could chat about this vision 31 00:01:33.319 --> 00:01:37.079 for building a European residential energy services business. And at 32 00:01:37.079 --> 00:01:39.359 the time, you know, I had been in private equity 33 00:01:39.400 --> 00:01:42.319 and it'd started to see some of the leading US 34 00:01:42.680 --> 00:01:45.680 residential energy services business at the time, Solar City and 35 00:01:45.760 --> 00:01:48.760 sun Run, and they'd seen the first securitization deals that 36 00:01:48.799 --> 00:01:51.400 had started happening in that market in the US and 37 00:01:51.519 --> 00:01:53.560 kind of had an ambition and a dream to take 38 00:01:53.599 --> 00:01:56.719 that kind of model here to Europe. And fast forward 39 00:01:56.799 --> 00:02:01.359 nine years, home Tree remains resolutely in that space. I 40 00:02:01.359 --> 00:02:03.879 would consider ourselves one of the UK market leaders in 41 00:02:03.920 --> 00:02:09.159 the residential energy services market. But it's unquestionably been a 42 00:02:09.680 --> 00:02:13.919 turbulent market. It's a market that had lots of fits 43 00:02:13.919 --> 00:02:16.520 and stops, and it's also a market that I think 44 00:02:16.560 --> 00:02:20.159 it's been very hard for players to really think about 45 00:02:20.319 --> 00:02:24.159 getting a business model that can scale and create meaningfulsh 46 00:02:24.360 --> 00:02:27.800 holder value over a long time. The baseline model that 47 00:02:27.840 --> 00:02:29.680 a lot of people have entered into this space is 48 00:02:29.759 --> 00:02:33.479 kind of a direct to consumer style installation business, maybe 49 00:02:33.520 --> 00:02:34.840 with a financing. 50 00:02:34.560 --> 00:02:37.199 Arm to that, but we're at a point in the 51 00:02:37.240 --> 00:02:38.120 market where. 52 00:02:38.439 --> 00:02:41.080 The fundamental kind of economics of that business are starting 53 00:02:41.120 --> 00:02:43.479 to break down with hikas and the kind of perfect 54 00:02:43.520 --> 00:02:46.400 competition that you see in the installation market has meant 55 00:02:46.520 --> 00:02:49.479 that some of the leading venture and growth equity back 56 00:02:49.520 --> 00:02:52.479 players are really struggling as the market has turned, for 57 00:02:52.520 --> 00:02:55.960 example in residential solar, but the competition has only increased, 58 00:02:56.159 --> 00:02:58.599 and the kind of flawed business model of going to 59 00:02:58.680 --> 00:03:01.639 market just with a direct to consumer one off hit 60 00:03:01.759 --> 00:03:04.039 product where you're installing a one so off system in 61 00:03:04.080 --> 00:03:07.919 that fifteen twenty year relationship with a homeowner has become challenged. 62 00:03:08.639 --> 00:03:10.759 And so by summary would be it's not an easy 63 00:03:10.800 --> 00:03:13.680 category to create value in home trees had to think 64 00:03:13.840 --> 00:03:17.039 very hard around trying to create a business model that 65 00:03:17.319 --> 00:03:20.319 can create returns in the ups and downs of the 66 00:03:20.360 --> 00:03:24.840 market and ultimately not be so reliant on pikak getting 67 00:03:24.840 --> 00:03:27.000 through to the consumer through kind of traditional direct to 68 00:03:27.000 --> 00:03:28.520 consumer media channels. 69 00:03:29.280 --> 00:03:32.159 Just take a tiny step back and just pretend I'm 70 00:03:32.159 --> 00:03:34.000 a consumer residential consumer. 71 00:03:34.159 --> 00:03:37.479 What do you offer from it Palm Trees today god 72 00:03:37.719 --> 00:03:42.479 three divisions. Our first division is a residential installation division 73 00:03:42.479 --> 00:03:47.039 installing heat pump, solar, battery and EV charging assets. The 74 00:03:47.080 --> 00:03:49.680 way that we're approaching that category is not building a 75 00:03:49.719 --> 00:03:52.840 direct to consumer business as I mentioned that might struggle 76 00:03:52.879 --> 00:03:56.520 with us having to fund the marketing costs. We're growing 77 00:03:56.520 --> 00:03:59.599 that business more as a buy and build and so 78 00:03:59.759 --> 00:04:03.879 we we have identified that it's clearly a hyper fragmented space, 79 00:04:04.000 --> 00:04:07.599 the installation space, but there are regional players that get 80 00:04:07.639 --> 00:04:10.759 a certain level of scale where they have a certain 81 00:04:10.879 --> 00:04:14.400 brand cachet within a fifty kilometer radius, they have a 82 00:04:14.439 --> 00:04:16.720 heritage in an area, and they have a management team 83 00:04:16.759 --> 00:04:19.560 that are local to an area that remain ambitious to 84 00:04:19.560 --> 00:04:22.600 grow a business that maybe are looking for both equity 85 00:04:22.600 --> 00:04:26.160 support but also other kind of back office support. And 86 00:04:26.199 --> 00:04:28.199 so what we found is that we're actually able to 87 00:04:28.240 --> 00:04:32.639 go into this market and acquire these companies for relatively 88 00:04:32.720 --> 00:04:37.319 low entry EBITDAM multiples three to four times EBITDAM multiples, 89 00:04:38.000 --> 00:04:43.079 incentivize management teams through four or five year earnout structures, 90 00:04:43.959 --> 00:04:46.879 really give them access to tools to help them be 91 00:04:46.920 --> 00:04:50.360 more effective on the sales, marketing and the installation side, 92 00:04:50.639 --> 00:04:52.720 but really try and centralize a lot of the back 93 00:04:52.759 --> 00:04:55.800 office in terms of hardware proturement, so go and do 94 00:04:55.920 --> 00:04:58.319 deals with the OEMs so we can try and drive 95 00:04:58.360 --> 00:05:01.959 better pricing on the hardware purchases. Typically we're going into 96 00:05:02.040 --> 00:05:05.959 quite non digitized businesses putting them onto our systems. 97 00:05:06.720 --> 00:05:08.120 That's the first part of our business. 98 00:05:08.160 --> 00:05:11.639 From a consumer, you can now through these local brands 99 00:05:11.639 --> 00:05:14.680 at home Tree Owns, get access to the actual hardware 100 00:05:14.720 --> 00:05:19.879 installations itself. Our next business is a financing business where 101 00:05:19.879 --> 00:05:24.040 we offered the homeowner long tenor lease and loan products 102 00:05:24.079 --> 00:05:25.920 for residential renewable retrofit. 103 00:05:26.439 --> 00:05:27.600 Typically you're looking. 104 00:05:27.360 --> 00:05:29.639 At a five to a twenty five year loan or 105 00:05:29.680 --> 00:05:33.079 a lease. A loan is unsecured, you own the asset 106 00:05:33.639 --> 00:05:36.399 the lease, we will own the asset and be responsible 107 00:05:36.439 --> 00:05:40.000 for the service and maintenance of that. But again we're 108 00:05:40.000 --> 00:05:43.319 not just offering that exclusively on our own installers. That's 109 00:05:43.360 --> 00:05:46.560 become a whole of market financier. So we're effectively a 110 00:05:46.560 --> 00:05:49.000 B to B business in the financing space where we 111 00:05:49.040 --> 00:05:53.879 sit behind many third party installers, utilities or manufacturers that 112 00:05:53.920 --> 00:05:57.600 are installing renewables, and we are becoming the financing engine 113 00:05:57.759 --> 00:06:00.600 for that. And in the last business, which is our 114 00:06:00.720 --> 00:06:05.560 largest business and our most consumer oriented business, is we're 115 00:06:05.600 --> 00:06:09.720 the fourth largest provider of what's called home emergency insurance 116 00:06:09.800 --> 00:06:12.680 or home warranty in the UK, where we offer homeowners 117 00:06:12.920 --> 00:06:17.639 insurance giving them coverage against breakdowns to their boilers, heating, plumbing, 118 00:06:18.040 --> 00:06:19.800 home electrics and when they. 119 00:06:19.720 --> 00:06:21.680 Have a breakdown, no heating. 120 00:06:21.399 --> 00:06:23.680 No hot water, we have a national network of five 121 00:06:23.720 --> 00:06:26.160 thousand engineers who can go out to their home and 122 00:06:26.199 --> 00:06:29.319 get them back and fixed. So what we like to say, Jared, 123 00:06:29.399 --> 00:06:31.600 is that we can offer a solution to the homeowner 124 00:06:31.639 --> 00:06:34.879 across the whole life cycle. We can install the hardware, 125 00:06:35.240 --> 00:06:37.399 we can finance it, and we can own it for you. 126 00:06:37.680 --> 00:06:40.040 And in life we can service and maintain that asset 127 00:06:40.079 --> 00:06:42.720 and give you that piece of mind. And ideally, of course, 128 00:06:42.759 --> 00:06:45.600 from a business model perspective, we can wrap all of 129 00:06:45.639 --> 00:06:50.040 that up into one contracted twenty year relationship where we 130 00:06:50.120 --> 00:06:52.279 own the acid in the home, we're responsible for the 131 00:06:52.279 --> 00:06:54.879 service and maintenance. So we've made some margin on upfront 132 00:06:54.879 --> 00:06:59.079 hardware installation, and as that customer needs more hardware without 133 00:06:59.160 --> 00:07:01.680 us having to acquire them through Google, we have the 134 00:07:01.800 --> 00:07:04.920 established relationship and we can keep it as that kind 135 00:07:04.959 --> 00:07:05.439 of annuity. 136 00:07:06.360 --> 00:07:07.800 Can I ask just one more question? 137 00:07:07.959 --> 00:07:10.439 And I know the wrong ones to also as questions 138 00:07:10.439 --> 00:07:13.519 it is, but my question really is go back to 139 00:07:13.560 --> 00:07:16.759 the consumer value proposition. For me at present, I'm buying 140 00:07:17.000 --> 00:07:21.519 electricity from a utility, why would I go install solar 141 00:07:21.600 --> 00:07:24.680 batteries heat pumps in the UK and why would I 142 00:07:24.680 --> 00:07:27.000 even lase it solar? 143 00:07:27.279 --> 00:07:30.680 When I started had feeding tariffs in the UK. Today 144 00:07:30.720 --> 00:07:31.199 there are no. 145 00:07:31.240 --> 00:07:34.480 Tariffs subsidies for rooftop solar and. 146 00:07:34.439 --> 00:07:38.000 The economics have become a lot more compelling in terms 147 00:07:38.040 --> 00:07:41.560 of payback, especially when paired with a battery. And so 148 00:07:41.959 --> 00:07:44.959 what you find is that the adoption rates on solar 149 00:07:44.959 --> 00:07:47.279 and battery in the UK for homeowners are much further 150 00:07:47.319 --> 00:07:51.920 ahead than heat pumps, and so the consumer is somewhat 151 00:07:52.079 --> 00:07:55.240 perhaps green oriented, but in many ways, like what happened 152 00:07:55.240 --> 00:07:59.079 in Germany, is making increasingly an energy security or a 153 00:07:59.079 --> 00:08:01.920 cost of living based decision where they want to lock 154 00:08:02.000 --> 00:08:05.279 in a certain cost of electricity over a ten to 155 00:08:05.360 --> 00:08:09.199 fifteen twenty year period. The reality in the UK today 156 00:08:09.240 --> 00:08:12.480 on heat pumps is slightly different. As you'll know that 157 00:08:12.639 --> 00:08:15.360 the UK has the highest penetration of gas heating of 158 00:08:15.399 --> 00:08:19.319 pretty much any developed market maybe other than Japan, and 159 00:08:19.560 --> 00:08:22.879 there's pockets of the country that have oil heating. But 160 00:08:22.920 --> 00:08:26.600 the economics of flipping from a gas boiler to a 161 00:08:26.600 --> 00:08:28.920 heat pump today, even with the seven and a half 162 00:08:29.040 --> 00:08:32.840 thousand boiler upgrade scheme grants from the government, are not 163 00:08:32.960 --> 00:08:36.480 as strong because unfortunately, the spark gap or the cost 164 00:08:36.600 --> 00:08:40.120 differential between electricity and gas in the UK, is four 165 00:08:40.159 --> 00:08:42.840 times and that does mean that the economic of heat 166 00:08:42.840 --> 00:08:46.279 pumps today are challenged. And so what we find is 167 00:08:46.360 --> 00:08:49.240 the eighty five thousand or so heat pump installs this 168 00:08:49.360 --> 00:08:53.440 year are primarily going in with homeowners that have four 169 00:08:53.519 --> 00:08:56.360 gride homes, so they might have an oil heating system, 170 00:08:56.799 --> 00:09:01.600 but they tend to skew towards more wealthy consumers, maybe grandparents, 171 00:09:01.639 --> 00:09:05.120 who want to be seen to be doing something good 172 00:09:05.159 --> 00:09:10.120 for future generations. It's not today being exclusively driven by 173 00:09:10.159 --> 00:09:14.440 an economic business case, and so depends on the technology Juard. 174 00:09:14.840 --> 00:09:17.679 But you know, we think that you are starting to see, 175 00:09:17.679 --> 00:09:20.080 for example, solar and batteries starting to make more sense. 176 00:09:20.120 --> 00:09:22.200 We've partnered up with the right kind of tariff and 177 00:09:22.279 --> 00:09:25.039 of course, look you're seeing players like octopus and others 178 00:09:25.039 --> 00:09:28.799 coming in with a heat bomp solution partnered with the tariff, 179 00:09:28.799 --> 00:09:31.799 where the economics with the government grant can start to 180 00:09:31.799 --> 00:09:35.120 make sense for more very specific types of homes. But 181 00:09:35.159 --> 00:09:37.360 I think we're in the very early innings of that. 182 00:09:38.600 --> 00:09:41.720 So if we go back to your three business and 183 00:09:41.759 --> 00:09:44.240 thank you for being clear, because sometimes we've got guests 184 00:09:44.279 --> 00:09:46.440 on the show and after half an hour we see 185 00:09:46.559 --> 00:09:48.600 don't really understand what they're doing. 186 00:09:49.519 --> 00:09:52.679 At least a year. I always understand it. Sluran and 187 00:09:52.720 --> 00:09:53.440 doesn't understand. 188 00:09:53.440 --> 00:09:57.080 Sorry, okay, sorry, let me rephrase because Jill's much more 189 00:09:57.080 --> 00:10:02.320 intelligent than me. Understand Jarna and I. We've done that 190 00:10:02.360 --> 00:10:05.200 in Germany with Fabe Sool. Of course it depends on 191 00:10:05.240 --> 00:10:08.240 the price electricity, but it was a very good proposition 192 00:10:08.480 --> 00:10:12.039 provided that you had put the infrastructure behind, which is, 193 00:10:12.279 --> 00:10:17.080 as Daniel would say, STUMPHI strumph, which is rins repeat, 194 00:10:17.159 --> 00:10:20.799 rins repeat, rins repeat. Now I understand what you're saying 195 00:10:20.840 --> 00:10:24.080 for heat pumps, because somehow it pumps. You need to 196 00:10:24.120 --> 00:10:26.159 go inside the house and it's going to take you 197 00:10:26.240 --> 00:10:29.399 four days. Where was the solon It's done in twenty 198 00:10:29.440 --> 00:10:31.559 four hours, And of course the price of the panels 199 00:10:31.559 --> 00:10:36.000 has gone down. You mentioned as total admiration for autopas 200 00:10:36.000 --> 00:10:38.879 because they are also the suppliers, so they can even 201 00:10:38.919 --> 00:10:42.600 probably package it more than you. And they've got all 202 00:10:42.639 --> 00:10:46.480 these software tools with dynamic pricing and so on, which 203 00:10:46.559 --> 00:10:50.159 really create a mini ecosystem. So is it a competitor? 204 00:10:50.240 --> 00:10:52.960 Are you collaborating with them? How does it work? 205 00:10:54.200 --> 00:10:56.639 Jared and I were talking ten years ago. 206 00:10:56.759 --> 00:11:00.679 There was Philip at Tormando, there was myself, Greg at 207 00:11:00.720 --> 00:11:04.200 Octopus had started the business maybe a year or so before, 208 00:11:04.240 --> 00:11:06.080 maybe it might have even been a number of months. 209 00:11:06.080 --> 00:11:08.960 And there was the founders of another challenger energy supplier 210 00:11:09.000 --> 00:11:12.080 called Bulb. And it can come questionably what Greg has 211 00:11:12.120 --> 00:11:15.840 achieved that Octopus is the most impressive energy story of 212 00:11:15.919 --> 00:11:18.639 the last ten years, certainly in Europe. It's a phenomenal 213 00:11:18.799 --> 00:11:22.320 success story today, the kind of business that clearly can 214 00:11:22.440 --> 00:11:25.799 do what they want. But my experience is I think 215 00:11:25.799 --> 00:11:28.799 there will be two winners in the residential energy space. 216 00:11:29.200 --> 00:11:32.840 There will be that whole full stack utility that socides 217 00:11:32.919 --> 00:11:35.360 they want to be both the supplier, they want to 218 00:11:35.360 --> 00:11:38.960 play in flexibility and that kind of virtual power plant space, but. 219 00:11:39.000 --> 00:11:41.840 Also build a large services business. 220 00:11:42.360 --> 00:11:44.159 And then I think there will be the rest of 221 00:11:44.200 --> 00:11:49.080 the utilities that our clear experience is will mostly decide 222 00:11:49.440 --> 00:11:53.480 to partner on the services side of the business. And 223 00:11:53.840 --> 00:11:57.240 for me, when I categorize services, it is how's the 224 00:11:57.240 --> 00:11:59.919 hardware going to get installed? How does that get finance? 225 00:12:00.279 --> 00:12:02.399 And in life, how does that get service and maintained. 226 00:12:02.919 --> 00:12:06.879 If you look at the key connecting tissue of those 227 00:12:06.919 --> 00:12:11.840 three businesses, it is the engineer, the installer, the engineer 228 00:12:11.919 --> 00:12:15.600 going into homes, which is fundamentally different to the DNA 229 00:12:15.720 --> 00:12:19.159 of a of ore retail utility. So you take something 230 00:12:19.240 --> 00:12:22.320 like our financing business, where we've just recently done the 231 00:12:22.320 --> 00:12:24.879 first ever securitization in the UK. We've raised a three 232 00:12:24.960 --> 00:12:29.639 hundred million facility from Barclay's and CPBIB. We've had pretty 233 00:12:29.679 --> 00:12:32.240 much every one of the utility providers in the UK 234 00:12:32.799 --> 00:12:36.000 reach out in active discussion, and we have for already 235 00:12:36.240 --> 00:12:40.559 two signed up saying that look, we're a regulated consumer utility. 236 00:12:40.799 --> 00:12:43.480 We're not going to become a regulator consumer financing business. 237 00:12:43.519 --> 00:12:46.039 As well, we'd like to partner with someone on who 238 00:12:46.080 --> 00:12:49.120 can finance the assets and own the assets and service 239 00:12:49.159 --> 00:12:53.360 maintain those assets. So the great question, I think octopus 240 00:12:53.399 --> 00:12:55.840 from what I can see right now is everybody's competitor 241 00:12:55.879 --> 00:12:59.519 because they've just been such a tremendous success story. Most 242 00:13:00.120 --> 00:13:04.639 these will struggle. British Gas or Centrica is a anomaly 243 00:13:04.759 --> 00:13:08.000 because of their historic position as. 244 00:13:07.679 --> 00:13:09.600 A national gas monopoly. 245 00:13:09.720 --> 00:13:14.000 They have this ingrained services business built around the gas boiler, 246 00:13:14.240 --> 00:13:16.159 and of course the question for them will be can 247 00:13:16.200 --> 00:13:19.879 they transition that asset British Gas home services towards the 248 00:13:19.919 --> 00:13:21.000 green assets going. 249 00:13:20.879 --> 00:13:21.480 Into the home. 250 00:13:21.759 --> 00:13:23.120 But I think if you look at all the other 251 00:13:23.240 --> 00:13:26.279 utilities they've struggled over the last twenty five years to 252 00:13:26.360 --> 00:13:30.759 replicate British Gas as services capabilities. Some have dipped in, 253 00:13:30.840 --> 00:13:33.559 some have not, some have partnered, some have not, but 254 00:13:33.639 --> 00:13:37.320 none have really been able to get a scaled installation, service, 255 00:13:37.399 --> 00:13:41.200 maintenance and now smancing business. I would argue there will 256 00:13:41.240 --> 00:13:43.879 be the octopus of the world, the pure plays, and 257 00:13:43.919 --> 00:13:46.720 then they will I hope be players like Cometry or 258 00:13:47.080 --> 00:13:49.879 White competitor for example Home Serve which is now owned 259 00:13:49.879 --> 00:13:53.519 by Brookfields, and a pure place services businesses that I 260 00:13:53.559 --> 00:13:55.919 think will really be kind of focused around having the 261 00:13:55.960 --> 00:13:59.919 engineer based as your DNA and go deep on that. 262 00:14:00.000 --> 00:14:02.080 That is my view of the going to two ways 263 00:14:02.080 --> 00:14:03.200 that you can win in this space. 264 00:14:03.919 --> 00:14:06.600 I'd like to summarize your the best of the rest. 265 00:14:07.200 --> 00:14:09.480 Well, we think it's a different model today. We're not 266 00:14:09.480 --> 00:14:12.080 competing with Octopus on financing. We're not sure they're going 267 00:14:12.120 --> 00:14:14.399 to come into that or necessarily serve as a maintenance. 268 00:14:14.840 --> 00:14:18.360 You're right, we will definitely not be anytime soon going 269 00:14:18.440 --> 00:14:20.159 into having a home tree tariff. 270 00:14:20.399 --> 00:14:21.919 We would partner on a tariff. 271 00:14:22.279 --> 00:14:24.600 And in truth, you know, when you look at flexibility 272 00:14:24.679 --> 00:14:28.279 and virtual power plants are peers in Europe that started 273 00:14:28.360 --> 00:14:31.759 on the services side, mostly on the installation side, and 274 00:14:31.840 --> 00:14:35.200 unparalor an einstem Afoff in Germany, they're kind of transitioning 275 00:14:35.240 --> 00:14:39.440 their businesses from the install towards the flexibility. The VPP 276 00:14:40.000 --> 00:14:42.360 gives a way to try and extend the consumer lifetime, 277 00:14:42.440 --> 00:14:45.879 drive that recurring revenue. I guess I've always had a 278 00:14:45.919 --> 00:14:50.279 sense that Kraken has a meaningful competitive advantage there given 279 00:14:50.320 --> 00:14:54.440 the scale. Does someone who's starting from the point of 280 00:14:54.480 --> 00:14:58.879 the install have a meaningful advantage there and what inevitably 281 00:14:58.919 --> 00:15:00.919 I think is going to be a lowmar and business at. 282 00:15:00.799 --> 00:15:02.120 Best, We're not sure. 283 00:15:02.200 --> 00:15:04.639 So we think that part of our business model we 284 00:15:04.679 --> 00:15:07.200 will partner on and really focus in on the three 285 00:15:07.200 --> 00:15:08.480 business lines that we're in today. 286 00:15:09.320 --> 00:15:14.320 Now let's move to the second one. Securitization. It looks simple, 287 00:15:14.679 --> 00:15:17.080 but in fact it's difficult because what you're doing is 288 00:15:17.120 --> 00:15:22.039 you're bundling thousands, if not tens of thousands of individual 289 00:15:22.360 --> 00:15:26.879 owners into a gigantic portfolio, which means a lot. It's 290 00:15:26.919 --> 00:15:30.519 all analysis about credit risks and so on, and then 291 00:15:30.519 --> 00:15:34.200 you flip it to Barclays well done. This has been tried, 292 00:15:34.559 --> 00:15:37.639 you know, by sun Run for quite some time in 293 00:15:37.720 --> 00:15:41.519 the US around soda. So were you kind of inspired 294 00:15:41.559 --> 00:15:43.840 by those securitizations initiative? 295 00:15:44.639 --> 00:15:45.919 Yeah? Absolutely so. 296 00:15:45.960 --> 00:15:48.080 Look, as I said, when I found the Home Tree, 297 00:15:48.080 --> 00:15:51.639 I had been working in private equity. I saw one 298 00:15:51.639 --> 00:15:53.879 of the assets that we'd invested in, and private equity 299 00:15:53.879 --> 00:15:56.720 fund was a leading home improvement business. We looked at 300 00:15:56.840 --> 00:15:59.240 entering solar, and then we looked at saying, okay, well, 301 00:15:59.240 --> 00:16:01.519 this whole solar nancing thing that's happening in the US 302 00:16:01.639 --> 00:16:02.519 is very interesting. 303 00:16:03.120 --> 00:16:06.159 But if you step back for the last ten years, Lauren, there's. 304 00:16:06.000 --> 00:16:10.279 Been over thirty billion of abs issues for residential solar 305 00:16:10.440 --> 00:16:14.919 and energy efficiency asset in the American public markets across 306 00:16:14.960 --> 00:16:20.720 a handful of originators, Sun Run, Solar City, Sonova, Goodleap mosaic. 307 00:16:21.399 --> 00:16:24.559 And the best way to think about this if you 308 00:16:24.639 --> 00:16:28.960 take traditional home improvement finance, you're buying a kitchen, you're 309 00:16:29.000 --> 00:16:32.440 doing an upgrade to your home. You go to Barkley's 310 00:16:32.480 --> 00:16:35.240 or a traditional home improvement finance provider, you get a 311 00:16:35.240 --> 00:16:38.440 ten year loan a twelve point nine to nine percent APR. 312 00:16:38.879 --> 00:16:42.639 That's additional debt on the consumer balance sheet. So when 313 00:16:42.679 --> 00:16:45.440 the credit guys are thinking about this, it's expanding the 314 00:16:45.480 --> 00:16:49.279 debt load of that consumer balance sheet. The energy model 315 00:16:49.320 --> 00:16:52.639 is quite a unique asset class within the consumer credit 316 00:16:52.720 --> 00:16:55.919 space because what you're not actually doing is adding additional 317 00:16:55.960 --> 00:16:59.240 debt to that consumer's balance sheet. You're essentially securitizing part 318 00:16:59.240 --> 00:17:02.639 of their energy bill because you're installing assets that are 319 00:17:02.679 --> 00:17:05.839 reducing their monthly outgoings in terms of the electricity bill, 320 00:17:06.319 --> 00:17:10.599 and you're securitizing that part of their bill. And so 321 00:17:10.960 --> 00:17:13.880 what you've seen is that as an asset class, it's 322 00:17:13.920 --> 00:17:17.319 got the characteristics that has meant it's performed on a 323 00:17:17.359 --> 00:17:20.079 credit basis. You know, these are all homeowners tend to 324 00:17:20.119 --> 00:17:23.039 be quite prime credit. You're pretty much in line with 325 00:17:23.160 --> 00:17:26.559 like prime super prime auto, and I kind of prime mortgage. 326 00:17:27.119 --> 00:17:30.920 And so I think where people maybe sometimes tripped over 327 00:17:30.960 --> 00:17:33.519 themselves a bit, as all the infrastructure funds three, four 328 00:17:33.599 --> 00:17:35.839 or five years ago were kind of getting excited saying 329 00:17:36.319 --> 00:17:38.559 this is like a kind of infra type play. 330 00:17:39.240 --> 00:17:39.799 It's not really. 331 00:17:39.839 --> 00:17:42.920 It's a consumer financing play, but it is a prime 332 00:17:43.000 --> 00:17:47.000 consumer financing play for US. There's a track record in 333 00:17:47.000 --> 00:17:50.039 the US now of enough issuance where the rating agencies 334 00:17:50.079 --> 00:17:52.119 who we spent a lot of time with have been 335 00:17:52.160 --> 00:17:55.559 able to get comfortable with really categorizing this as prime 336 00:17:55.640 --> 00:17:56.480 consumer credit. 337 00:17:57.480 --> 00:17:59.000 It's performed quite well. 338 00:17:59.039 --> 00:18:01.359 There have been a number of originator issues in the 339 00:18:01.440 --> 00:18:03.640 US which we can talk about, but I think they're 340 00:18:03.720 --> 00:18:06.519 less connected to the underlying credit quality than they are 341 00:18:06.599 --> 00:18:10.440 to some market issues in the US Europe, as is 342 00:18:10.480 --> 00:18:13.599 always the case in financial innovation at five ten years behind, 343 00:18:13.640 --> 00:18:15.960 and if you look at what is quite an important 344 00:18:15.960 --> 00:18:19.440 moment for the category last week, fair play to them. 345 00:18:20.039 --> 00:18:23.119 MPAL, a German pier of ar as a competitor, did. 346 00:18:23.039 --> 00:18:26.039 The first public market ABS issue ince at two hundred 347 00:18:26.039 --> 00:18:30.200 and forty million euro portfolio of solar backed loans were 348 00:18:30.359 --> 00:18:33.279 securitized through a green bonds to the public markets. 349 00:18:34.000 --> 00:18:35.759 And what is really pleasing to see is. 350 00:18:35.759 --> 00:18:39.319 That had over seven times over subscription for this bond 351 00:18:39.960 --> 00:18:41.759 and it was exactly the same when we went to 352 00:18:41.799 --> 00:18:44.839 market to raise our three hundred million private facility with 353 00:18:44.960 --> 00:18:50.519 Barclays and CPBIB the level of interest from institutional capital 354 00:18:50.599 --> 00:18:54.519 to own these screen paper was sky high. It's not 355 00:18:54.680 --> 00:18:57.960 only because of the ESG angle. It genuinely I think 356 00:18:58.000 --> 00:19:00.599 there's there's the performance of the US the class that 357 00:19:00.720 --> 00:19:03.759 is informing them and think it desired to kind of 358 00:19:03.759 --> 00:19:06.079 help create this asked class here in Europe. 359 00:19:06.759 --> 00:19:10.039 Just for our listeners because I know job knows, but 360 00:19:10.200 --> 00:19:16.240 maybe or our listeners don't know. ABS means asset back securities. Correct, 361 00:19:16.720 --> 00:19:20.039 it's like a bond, Yeah, but it's a bond which 362 00:19:20.160 --> 00:19:25.319 is collecteralized by a certain number of assets. I haven't 363 00:19:25.319 --> 00:19:28.519 got into the details. So what interest rates have you 364 00:19:28.640 --> 00:19:30.640 been able to offer. 365 00:19:30.839 --> 00:19:33.240 We've been able to get a blended cost of capital 366 00:19:33.279 --> 00:19:37.400 across the Barclays and CPP facilities sub six percent and 367 00:19:37.519 --> 00:19:39.960 we're able to offer interest rates to the homeowner of 368 00:19:40.000 --> 00:19:42.720 eight to eight and a half depend So this is 369 00:19:42.799 --> 00:19:44.640 really competitive cost of financing. 370 00:19:44.880 --> 00:19:46.799 And if you look at the public market deal that 371 00:19:46.960 --> 00:19:48.119 MPAL did last week. 372 00:19:48.440 --> 00:19:50.720 Our analysis is that it came in one point eight 373 00:19:50.720 --> 00:19:54.599 percent tighter, so came in in the low force, which 374 00:19:54.640 --> 00:19:55.880 means that you know, if you want to create a 375 00:19:56.000 --> 00:19:59.160 virtuous circle of consumer adoption here, you have to bring 376 00:19:59.160 --> 00:20:02.279 the cost of capital down. And that is why securitizing 377 00:20:02.319 --> 00:20:05.440 to the public markets makes most sense, Lauren, because it's 378 00:20:05.440 --> 00:20:08.160 the only place where you got the deep enough pools 379 00:20:08.160 --> 00:20:11.039 of cheap capital that's willing to finance assets for twenty 380 00:20:11.039 --> 00:20:14.359 plus years. And look to your question around structuring its 381 00:20:14.680 --> 00:20:17.440 complex field, the best way to think about it is 382 00:20:17.519 --> 00:20:21.920 home Tree as an entity is a corporate originator. We've 383 00:20:21.960 --> 00:20:25.160 set up an off balance sheet structure so it's not 384 00:20:25.519 --> 00:20:30.160 guaranteed by the corporate that's originating these assets, and it's 385 00:20:30.160 --> 00:20:33.640 an SPV that has a trustee arrangement on top of that. 386 00:20:34.240 --> 00:20:37.000 The best way to think about that SPV is that SPV. 387 00:20:37.240 --> 00:20:40.039 All that's going into that is the cast flows from 388 00:20:40.039 --> 00:20:42.960 the consumer pain for the solar, the batteries, the heat 389 00:20:42.960 --> 00:20:44.599 pumps over fifteen. 390 00:20:44.279 --> 00:20:45.519 Twenty to twenty five years. 391 00:20:46.279 --> 00:20:49.000 And the way we financed that SPV is that Barclays 392 00:20:49.000 --> 00:20:52.319 are the senior partner. They will finance the first eighty 393 00:20:52.359 --> 00:20:56.480 percent of any loan release. CPBIB will do the mezzanine piece, 394 00:20:56.480 --> 00:20:59.519 and they will fund the next fifteen percent, and then 395 00:21:00.079 --> 00:21:02.279 he needs to fund the last five percent what's called 396 00:21:02.319 --> 00:21:05.920 the risk attention trunch. So we've all agreed a certain 397 00:21:06.000 --> 00:21:10.480 level of losses we think are likely and tolerable, but 398 00:21:10.599 --> 00:21:13.599 above that, the first five percent of losses on credit 399 00:21:13.680 --> 00:21:16.759 quality is home Tree's risk to take. So our cost 400 00:21:16.799 --> 00:21:19.400 of capital needs to be higher, and it is higher, 401 00:21:19.480 --> 00:21:22.920