In Episode 5 of the podcast, we speak to Samir Pendse , co-founder and CEO of Coral , a New York-based startup working to accelerate the energy transition by providing software and specialized financing that helps contractors streamline the complexity of incentives, tax credits, and tax rebates, in turn making heat pumps - and other electrification projects - easier and cheaper to finance for both those contractors and the end consumers.

I learned a lot from Samir in the episode. With his insights, I now better understanding present financing options and how traditional consumer credit costs contractors high fees and high loss rates. I also better understood how much of an opportunity there is in bringing both rebates and tax refunds into the point of sale in order to lower the up-front cash required to make a purchase. With an expanding landscape of incentives thanks to the Inflation Reduction Act, as well as an expanding ecosystem of lenders thanks to its Greenhouse Gas Reduction Fund, I can see how important offerings like Coral will be to reduce upfront costs and simplify and streamline all of this for both contractors and end consumers.

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Key Links Discussed in the Podcast 

• Coral (Samir's startup)
• Inflation Reduction Act
  • HOMES rebate
  • HEAR rebate
  • Greenhouse Gas Reduction Fund
• SELF - Solar Energy Loan Fund
• Inclusive Prosperity Capital
• Michigan Saves (green bank)

Transcript

The following is an automatically generated transcript, which means there are certainly transcription errors. It is provided to make it easy to find the content you are looking for. 

[00:00:02] Samir: We want to make it as easy as possible for homeowners and contractors to get the lowest possible price for heat pumps and to get the best possible rates in terms of financing for heat pumps in the fastest, simplest way

[00:00:21] Nate: Hello and welcome to the Heat Pump Review podcast. I'm your host, Nate Westheimer. Heat Pump Review is a newsletter, podcast, and data resource for all things heat pumps. Our goal is to discuss heat pumps in a way that is accessible to people who are curious about the technology and how we can best develop and deploy this technology as the world transitions from inefficiently burning fossil fuels to efficiently heating and cooling our homes and businesses, heating our water, cooling our foods, and even greening our industrial processes with an ever improving energy grid.

[00:00:56] If you like today's content, check out our website at heatpump. review. Subscribe to our newsletter and check out our past episodes by subscribing to the podcast and your favorite podcast player.

[00:01:06] Today, we're speaking to Samir Pendse, the co founder and CEO of the New York based startup Coral. Samir started his career at the microfinance non profit Accion, later joining Boston Consulting Group where he helped build small business lending products. In 2023, Samir and his co founder Nizar brought their fintech experiences together in an effort to fight climate change and co founded Coral with the mission of making heat pumps and other forms of electrification more affordable and accessible.

[00:01:38] In this episode, Samir will help us get a broad understanding of the heat pump financing and incentive landscape, and also dive deep into his company, a software platform that sits between contractors and consumers to help simplify and combine incentives and financing options to make heat pumps cheaper and more affordable.

[00:01:59] And so, let's get into it. Samir, welcome to Heat Pump Review Podcast.

[00:02:04] Samir: Thanks so much, Nate. Super excited to be here and uh, excited to have a great discussion on such a critical topic.

[00:02:10] Nate: Yeah, well, eventually, I want to get into Coral itself. It's founding story and what you all do. But maybe before we get to that, let's start at a high level. Where are we in terms of financing these types of equipment. So people want to go out there and buy a new heat pump HVAC system or do a big electrification upgrade, maybe get a water heater, but also upgrade their panel.

[00:02:40] Maybe get solar, maybe get batteries. Obviously that's a huge, large landscape and especially solar has their own types of things going on there, but maybe for everything else what's going on in terms of financing today? What are the options that, that people have in front of them?

[00:02:57] Samir: Yeah, long story short, we're not close to where we need to be and we strongly feel affordability and the lack of financing is the biggest bottleneck and challenge to electrification upgrades. And just for some kind of data around this, the average US homeowner has a little over 5, 000 in savings period when you look at the median.

[00:03:18] And Despite the rebates, the tax credits and all the incentives around energy efficient upgrades, the upfront cost of things like heat pumps are higher than for a season for boilers and furnaces, upgrades like batteries and solar and all these things are incremental costs. And for the average homeowner, It's absolutely untenable to afford any of these devices period without financing, and especially in a high interest rate environment and not just a high interest rate environment, an environment where a lot of these lenders are under pressure and can't even offer financing to many consumers.

[00:03:50] It just makes it a non starter. So that is a major, major challenge that we're gonna have to overcome as an industry to really allow electrification at the pace needed to reach all of our goals.

[00:04:02] Nate: Yeah, the, the, you mentioned the rising costs and there's this dynamic, it sounds like as well, whereas these systems get smarter and do know how to save you money over the long run, it does increase the, the upfront CapEx, even if there is some, what's called OpEx savings for the household, long term And so I can see how that is definitely an impediment, an impediment, especially if we're looking at this from a point of equitable deployment of, of electrification, but in terms of where we are today I don't know if you have this data or have a general idea if you don't have the precise data, but how, how does it feel like people are buying let's, let's take an HVAC system today?

[00:04:46] Are people just mostly paying cash? Are they mostly. Using consumer credit. How, how are people even getting these inside their homes today?

[00:04:57] Samir: So the vast majority of these purchases are financed because if these are 10, 15, 20, 000 purchases, the vast majority of homeowners don't have the cash to be able to find her before these, you know, out of pocket. So they are financed. We've seen data suggesting 70 to 75 percent of these projects are financed in some cases.

[00:05:17] I'd say rare cases through their bank and even rare cases maybe through a HELOC or drawing on the equity value of your home mortgage. But it's largely through consumer credit and existing consumer finance solutions that exist for HVAC and really financing for home services is not new at all. For people doing kitchen remodels, roofing, all sorts of home renovations, there are financing solutions available, but they are consumer credit solutions where they're typically unsecured consumer loans based on pulling a consumer credit score, the unsecured nature means that there are especially in this environment, higher rates, typically in the HVAC world, these contractors are actually getting charged by the financing company, a significant dealer fees to even offer this financing, which then they bundle into the heat pump costs and make those higher.

[00:06:06] But there's all these challenges from this existing system. And then more critically, Especially for things like heat pumps, all of the existing consumer financing completely ignores any of the rebates, tax credits or other incentives available that should make the upfront cost of these systems lower.

[00:06:21] So even if a homeowner really is eligible for a much lower cost of something like a heat pump, because they're going to get a rebate in a couple months, they're going to get a 2, 000 tax credit in a year, they get charged full price and have to get financing for the full price, and they have to Be underwritten and approved and pay interest on the full price, which is a tough deal for most homeowners.

[00:06:41] So that's the current state where there are solutions, but they leave really the whole ecosystem wanting.

[00:06:47] Nate: And you said there's sort of. You know, yes, the rare case, you're going down to your local bank and getting a loan. Mostly these are consumer financing, specifically companies that are focused on these types of projects. Is there one company in this space or two companies in the space that own, you know, 80 percent of the market?

[00:07:07] Or is this a pretty diverse set of lenders? Out there. How do you see the, the kind of ecosystem today in terms of these consumer home project lenders who are also lending into these electrification projects today?

Ecosystem of Lenders

[00:07:23] Samir: There are a I'd say a handful of large financing partners for home services broadly, and they're working with many contractors today and contractors are offering proactively. If you don't have a relationship with your bank or want to get financing on your own, we have finance solutions for you. Some of the big ones that come to mind are Okay.

[00:07:42] Green Sky is a large one. Synchrony is a large one. Good Leap is one that's really started around the solar space, but is now doing a lot of work in the HVAC space and around heat pumps. So there are some large players like that, but again, it is still kind of adopting a older model around consumer financing based on a consumer credit score with even if there's things that make it a better user experience and make it approve faster it's still generally a higher interest rate.

[00:08:09] Approval rates that aren't what we need them to be and really disconnected from these incentives that are available.

[00:08:14] Nate: Yeah, well, you keep on hitting this being disconnected from the incentives are available. I have a feeling that as we get into the Coral story, we'll, we'll hear how you tie all these things together just to round out this conversation around the present landscape. Talk about cash and if the median savings is 5, 000 is how that is not going to cover one of these systems for the, for the most part, and then consumer credit being the large A large hitter in this space.

[00:08:48] What about other things like state loan programs? I know here in Maryland, there's a program where I think you can work with a local community lender and maybe get slightly better rates. Then there's also kind of creative models I've seen out there that you might call heat as a service or sort of HVAC as a service where companies like sealed are coming in and giving you your heat pump, quote unquote, but taking over your electricity bill and sort of paying themselves back that way.

[00:09:23] So what are some other categories that you're seeing in addition to the main ones being cash and consumer credit?

[00:09:29] Samir: I think those call it two buckets, especially the first one is a huge opportunity for impact where certainly I think Maryland is a great program. We are. We've launched also in the Northeast and Massachusetts is a great program. New York is a great program and they are State backed low interest financing specifically for electrification.

[00:09:52] Now there's also, I'd say kind of very close cousin of those, which are nonprofit CDFI which are community development, financing institutions lenders, which also have philanthropic dollars that allow them to offer low cost financing specifically for electrification. And a lot of these organizations are also focused on low and moderate income communities and kind of creating equity there.

[00:10:12] So that's great. I think one of the challenges, though, and as you mentioned, I worked at Exxon and I worked at a CDFI lender. Often it can be challenging to actually approve homeowners or even businesses for this financing. There is more often that has to be verified in terms of who qualifies for the financing, both around income verification and also around specific types of projects, sometimes specific types of even energy savings that need to be delivered to qualify.

[00:10:39] And that means Well, we've seen both for the nonprofit lending and also for the state backed lending. It can take weeks or sometimes over a month to qualify for financing. And that time lag is a major issue. That's actually something that the existing financing players on the for profit side I mentioned.

[00:10:56] Actually do fairly well where you can get approval same day, really at the point of sale, which is critical for a homeowner who might need cooling or heat urgently. It needs to get this project done. They can't wait weeks or over a month for a decision. And that's the challenge that I think both on the government backside and on the Green Bank side really needs to be be solved you know, the coming months and years.

[00:11:21] Nate: That that's such a good point. I don't know if you have the precise numbers here, but but I think we know that a large percentage of certainly water heaters and HVAC systems are done at the point of failure. And if it's this week, it's 100 degrees out here in Maryland and for your own homes, your family's health, you really can't do anything but get the thing that you can most afford as quickly as as possible.

[00:11:52] Samir: Yeah, and on the HVAC and heat pump side, we've also seen, you know, varying ranges, but definitely the majority and somewhere in the 60 to 70 percent range is where it's not necessarily like complete failure, but you are clearly seeing degradation in performance, funny sounds, inconsistency, and you know, you're going to have to replace it urgently and you can't wait so that's where the speed does really matter.

[00:12:19] Nate: and this might sound like the answer is very obvious, but I'm going to admit that it wasn't to me at first, I came at this thinking if I went to go buy a car today, there are all sorts of ways to make sure I can get that car, whether it's a lease or a loan from my bank, they have a special product, it's called an auto loan, it seems as though that, um, Industry that category of product, which is only maybe about double what you are going to spend on an HVAC system is far more advanced, far more clear cut, much more competitive in terms of the lending products and comparing rates and all of that.

[00:13:04] And then in the, take the HVAC category, very hard to compare rates. Most people would not be able to name a lender that you named earlier. Or even be aware that you can get a loan through potentially a state that you live in, if you, you know, live in a more, let's say, progressive or, or Northeastern state.

[00:13:26] So, why is this such a different category, do you feel like, than some of these other lending categories?

[00:13:34] Samir: Yeah, I think that there are a couple reasons. One of them is just the leasing model versus what in the HVAC world is traditionally an unsecured loan against a Today it's a heat pump, previously a boiler, or a furnace, or an air conditioner, or any of these traditional systems. For a lease, a car dealer, a financing partner can repossess the car.

[00:13:59] If you're behind on your payment, you can take it back. And you also have resale value, where once the lease is expired, you can sell that back to someone else. So that allows them to finance cars in a way where There's intrinsic value, but also you have an incentive to make sure that you get these lease payments and you can use that to price and risk from the car owners and, and offer more affordable and also more profitable lease terms.

[00:14:24] Around HVAC, For very good reasons. You can't come in and take out somebody's HVAC system and they're eating and cooling on. That should be the case, probably. And that also, that was why it does have to be more of a unsecured alone where you are just truly measuring the risk off, you know, do homeowners actually pay back or not?

[00:14:47] That can be a tough thing to do. And as a result, they have to price at much worse interest rates and much higher interest rates just to cover the risk. And that Not only is just challenging for the homeowner that's actually challenging for the lenders and makes this not as attractive a category in general to be focused on what's happened a little more recently is and I mentioned up front the way that these financing partners like a green sky or a synchrony make that work.

[00:15:13] They don't just charge homeowners interest rates, they actually charge contractors to basically buy down whatever the interest rates that their, you know, risk modeling would suggest. So a contractor that you're working with actually has to pay five to 10% of whatever they sold the system at to the financing partner, just to get them to offer market rate interest rates.

[00:15:33] And I bring that up as a key 0.1, because that creates a huge challenge for the contractor industry. But two, you can only command those prices when you have larger contractors that can actually, first of all, see the value in financing and driving sales, and also can afford, based on their cost structure, to pay these 5 10 percent dealer fees.

[00:15:53] And that's really the overarching second piece. The auto industry has historically been much more consolidated, not just at the OEM level, but with dealers that are very tightly linked to these manufacturers where the contractor landscape and even the distributor landscape is much more fragmented. And that's why it's been much more recent.

[00:16:11] It's just consolidating bit by bit that they can, you know, work with financing partners in that way and even make it feasible.

[00:16:18] Nate: So many, so many good points in there and yeah, first of all, these things don't have wheels on them. They're, they're kind of bolted to your, your ground. So even if, even if as a society, we wanted to make it easy for these systems, which provide health to the home, To be repossessed, it would be very hard to repossess it and, and your, your appetite for a used car is going to be maybe higher than for a used HVAC system. And, and yeah, we, we as a society of have decided that we don't want water to just be shut off at the second that a bill is not paid. And we probably don't want heating and cooling to be shut off either.

[00:16:55] So all that makes sense. You mentioned you know, nonprofit lenders. Could you just go into that a little bit more? Cause I think that's a counterintuitive idea, at least, you know, for me, again, there's no nonprofit out there trying to help me get a car or help me redo my kitchen. So what are examples of, of nonprofits and what is really their ability to To even have an impact because in my mind, you really need the markets to be a part of the financing ecosystem for it to scale.

[00:17:35] So, you know, what are, what are some examples here and how do you see them scaling up?

[00:17:39] Samir: Yeah, so actually a little bit of history and in terms of I think really impactful legislation in I think the 70s, Congress passed the Community Reinvestment Act to the CRA, which means every large commercial bank above a certain size has to dedicate a certain amount of their profit and just a certain amount of resources towards reinvesting into the community through typically LMI, you know, low and moderate income communities, either helping Homeowners or consumers or small businesses with access to capital and financial products that either they wouldn't be able to get otherwise or are at rates that are more affordable, given their kind of credit position or both.

[00:18:20] So that is kind of government mandated and therefore Effectively, like subsidized capital for impact and for inclusion and for financial inclusion. And most of the large banks have whole teams now focused on really this impact focused lending vehicles. And some of them are directly managing that and many of them are lending Large grants or, you know, other ways of funding nonprofits who are specifically focused on financial inclusion and building innovative financing or lending products for use cases that the private market wouldn't serve.

[00:18:54] And then separately, there are, you know, Call it large donors and family offices and others who are also funding these type of programs. So this nonprofit kind of philanthropic financial inclusion is a large actually segment of nonprofits, community organizations that exist, but have only more relatively recently been focused on electrification and equity from a climate standpoint, which also is a huge overlap with just the health and wellness standpoint as well. When you think about natural cause and some of the impact there, there are you know, several, I would say, large Green banks are partners across the country.

[00:19:32] Michigan saves, I think, is one of the oldest in the country that's in Michigan. Self, the solar energy load fund in Florida is one of the also largest and well established ones. Inclusive prosperity capital is another one on the northeast that is now expanded throughout the country. So there are certainly a set of green bank leaders that have exist, but they're One, I think they compared to other elements of kind of financial inclusion, haven't gotten this much attention as maybe they deserved.

[00:20:00] And two now the Greenhouse Gas Reduction Fund really helps supercharge these these organizations. It's, to some extent, they're new organizations emerging to help partner and help, you know, deliver low cost financing, but it's really these organizations that have existed and proven out the model.

[00:20:16] To some large extent, now get the funds to really supercharge our experts efforts, scale the product, scale their programs and launch new ones building on what they've done before. And that is a awesome thing and a great opportunity to then help solve this problem around affordability financing, especially for low income homeowners.

[00:20:36] Nate: And, and maybe also for the contractors, because I assume a green bank is not necessarily asking a contractor to pony up 10, 15 percent of the overall bill in order to Hmm. Send that loan over to their consumers.

[00:20:53] Samir: Absolutely. I think it's a great thing for contractors for exactly avoiding the dealer fee, being able to offer better rates, and also not just offering better rates, but approving more homeowners. I mean, a lot of one of the biggest things just as important as the dealer fees that contractors are evaluating is what's the approval rate?

[00:21:10] Is it 70 percent 60 percent 80 percent if you get all the way to selling a system at the point of payment, and just needing to qualify for a homeowner for financing after all this work? And 20, 30 percent just get denied financing and you lose the sales. That's a huge waste of time, effort resources. So being able to have a more kind of generous and almost innovative credit box and offer financing to more people period is a huge advantage.

Incentive Landscape

[00:21:37] Nate: Okay. Let's put a pin in financing for a second because I also wanna cover the landscape around incentives. 'cause I, I know that big part of what you do is tying these two things together. So we have a bit of a, a landscape on the credit. I do, you know, we will follow up, I think on the, on the greenhouse re gas reduction fund a bit, but, but incentives so.

[00:22:00] It feels like as as consumer, there are a bunch of incentives and to the zip code, you might have a different set of incentives than, than somebody else. How do you think about the broader incentive landscape? And. And I'm curious, even if you have a sense of what percentage of the country have some form of, of incentives, well, I guess everybody has access to the Inflation Reduction Act to some degree, but, but beyond that, how do you think about the landscape and coverage right now in terms of those incentives?

[00:22:37] Samir: Yeah, so everyone in the country has access to the up to 2, 000 for he pumps 25 c tax credit soon. Hopefully in pretty much all 50 states, there'll be rebates from either the HEAR or homes program, which is Let's go into them a little bit are really full federal rebates that exist specifically for electrification.

[00:22:56] The HEAR program is specifically for low income and moderate income homeowners up to 8, 000 on rebates for things like heat pumps, wiring, heat pump panel upgrades, insulation upgrades, water heaters, and the like. And then there's another large rebate program, the HOMES program, which based on the energy savings you get you actually achieve or projected to achieve you get up to 4, 000 against this kind of the whole set of electrification upgrade. So that is very meaningful and in many states, transformative; and I think it actually is worth thinking about where their existing programs to the point on the state level and where are there, you know, a total dearth of programs. So states like, you know, Massachusetts, New York, California, Colorado, the West coast, like they have large existing programs and this All the federal money will help, but we're actually most excited about states like Texas or Florida or the middle of the country where there actually is huge demand and need from electrification and you're seeing what's happening with grids being overwhelmed and rising energy costs and all these things, but there aren't.

[00:23:58] Really that much in the way of state rebates today. So being able to offer these rebates can really you know, dramatically help in those areas. So that's the federal piece. But the state piece to the question on coverage. We, I think, have seen 33 out of the 50 states have meaningful state level rebates existing today for energy efficient HVAC, things like heat pumps and heat pump water heaters.

[00:24:20] And we haven't quite tallied up how many people live in each state times a 33 states, but it's in a lot of large population centers on the coast as well. So it should be at least, you know, 70 percent of the country or so has access to these large rebate programs. It's roughly 10 billion a year in energy efficiency rebates spent at the state, local and utility level.

[00:24:41] It's been steadily increasing over now decades, actually, in a pretty consistent 5 to 10 percent CAGR. Annual growth rate and some of the things that make these really durable, especially, you know, in an election cycle. And we think about some of the political risks happening more broadly in the country.

[00:24:59] These are the same programs that used to fund led light bulbs, and then we're funding, you know, mass thermostats, and now they're focusing on heat pumps. And if we all do our jobs, then hopefully in five years and everyone have heat pumps, they'll be focused on other things, you know, batteries, or they're more whatever.

[00:25:13] And they are durable, they are enduring, they've been around for a while. And they also largely are funded through rate payers, actually, it's a percentage of everyone's utility bills goes to actually fund these programs, which means even independent of federal policy, they're not dependent on incremental state budget allocations, in many cases, to fund these.

[00:25:32] So all of this, you know, not just the opportunity for these, it's also the durability, these are going to be around and going to be something that we as a industry need to fully take advantage of to drive the change we need.

[00:25:46] Nate: On that point of them going to the rate base. Instead of them coming out of state budgets, I think it answers a follow up question I had. But just to be clear when we are talking about incentives at the state level. So most of these are being administered through the utilities themselves versus a state energy office.

[00:26:07] Samir: Correct. And that's that, you know, that's a great distinction. There are rebates through the state. There are rebates through kind of a local municipality, but the majority are from the utilities exactly as you described where and that's what, you know, the rate payers are funding the programs and being distributed through the utility.

[00:26:24] Nate: And then back to your overview of. The Inflation Reduction Act. That was very helpful. To be clear, those three different avenues, the 2, 000 or the income based or the performance based, those are not stackable. You sort of pick a lane that you're going to get the best return on.

[00:26:45] Samir: The best federal rebate. Exactly. So you would pick one of those two lanes in terms of rebate programs, then Correct. You know, find the best that you're qualified for and a lot of the I think now opportunity and need is to help the contractors working with homeowners identify which is the lane and kind of incentive set that you are qualified for and that will best serve you.

[00:27:07] So you can't stack the federal rebates. You pick one. You can claim the federal tax credit. And a federal rebate and in most cases a state level rebate on top of that. So there can be stacking across levels. Just not within the federal rebates.

[00:27:22] Nate: all right. So help me make sure I'm getting that point in terms of stacking a rebate versus a credit. Let's just take again a heat pump purchase. What's an example of somebody stacking those two things?

[00:27:34] Samir: So for a heat pump purchase, you would in most cases be able to claim a 2, 000 let's say up to a 2, 000 tax credit. And we should talk about

[00:27:45] Nate: So that's the 25 C.

[00:27:47] Samir: 25 C. Yeah, exactly. Those two words up to are one of the biggest blockers in the industry. But let's say for now up to 2, 000 tax credit and you would be able to get, let's say 4, 000 homes rebate from funded by the federal government and distributed through the states, and you would able to be able to get, let's say, utility rebate or a local lover rebate on top of that.

[00:28:10] So you would be able to stack all of those. And what that would mean, if you could fully capture those incentives is at the point of sale for a heat pump, let's say it's 15, 000, which is the national average, you would get the 4, 000 homes rebate off of the point of sale, you would get a Let's say 5, 000 additional state level rebate at the point of sale.

[00:28:29] And you could see a net cost of 15 minus four minus five, 6, 000 for the heat pump, if you could fully capture those rebates in practice, you have to file. So, I mean, the IRA rebates aren't yet, but when they are, you have to file separately for the IRA rebate file separately for the utility rebate, wait months to receive each of these.

[00:28:48] And that's part of the friction that, that exists today.

[00:28:50] Nate: And just to clean up that point on timeline. So the 25 C the 2, 000, the reason why we mostly talk about that in terms of the inflation reduction act and heat pumps is because you can do that today. You can go pay whatever it is, 15, 000 out of pocket. And as you're doing your turbo tax next year

[00:29:12] Samir: Yep.

[00:29:13] Nate: in the information that you did that and, and have that 2, 000 credit the, the rebate at point of sale.

[00:29:20] That's what you're saying is not online.

[00:29:23] Samir: Correct. At the federal, but with one New York state just got The very first allocation of you know, federal rebates very recently, but in most states it's not online yet. We hope it's, you know, certainly over the second half of this year, more and more states are being approved and funding is becoming available, but not available yet.

[00:29:42] Nate: Okay. Just to round out the inflation reduction act, then conversation, is there anything that we didn't touch on in terms of the greenhouse gas reduction fund that it's called the EPA's greenhouse gas reduction fund, even though mostly the way that people will interface this is, is with local community lending organizations.

[00:30:01] Is there anything else there that we should touch on?

[00:30:04] Samir: No, I think it's a Exactly as you put it, there should be kind of more and more emergence and visibility for community green banks and organizations to leverage this greenhouse gas reduction fund money with expanded programs, even better terms and better rates and things like that to make electrification more affordable.

[00:30:24] I do want to just expand on the tax credit. And even this broader rebates. Everything we've talked about so far is In terms of heat pumps, and I know it's heat pump review, and we're focused on it, and it's, you know, for good reason, but as we think about other electrification upgrades, things like batteries, solar, geothermal, other things that are related, the tax credits are even greater.

[00:30:46] It's up to 30 percent of the total cost can be applied as a tax credit. There are the rebates apply to not quite solar, geothermal, and batteries, but to heat pump water heaters and panel upgrades and things like that. So there is a broader set. opportunity out there and that greenhouse gas reduction fund capital also can go towards solar and all types of electrification upgrades as well.

[00:31:09] So it really does all fit together within the incentive puzzle.

Coral

[00:31:14] Nate: so now we have this really complex, kind of complex evolving, let's call it incentive landscape. And then we have the financing landscape that is, you know, somewhat fragmented, has things that are sort of nasty in there for contractors and for consumers could be cleaned up. It could be more straightforward, certainly, it could be better understood by consumers as they're going through purchasing decisions. Great segue to Coral. You've seen this. This worries you. What are you doing to solve it?

[00:31:55] Samir: Yeah, we want to make it as easy as possible for homeowners and contractors to get the lowest possible price for heat pumps and to get the best possible rates in terms of financing for heat pumps in the fastest, simplest way. So ultimately, You can get a heat pump for less and you can get it financed now.

[00:32:15] And that's what we really think solves all these, largely, at least many of these barriers around affordability and access and equity that we've spent a lot of time talking about. There's two kind of pieces of this one for the homeowner. We really just want to take as much of this burden off of their play as possible, where it's as simple as saying.

[00:32:36] We're going to get you your federal rebates, your state rebates, any other local rebates you're eligible for. We're going to file them for you. We're going to claim them for you. You just get a lower cost upfront period, and you just don't have to think about it. And from a user friction standpoint, that's really what's needed to get people on the stressful situation and moment of replacement, and they're just trying to get heating and cooling back to their home to really say.

[00:33:01] Okay, I'm just getting the lower cost now and I'm done. That makes heat pumps a no brainer. So that's the experience we're trying to deliver for them. And then the second analog for that is not having to wait. Weeks are over a month to get qualified for financing, especially this lower cost green bank financing or state bank financing saying.

[00:33:19] We can qualify you for these best low cost rates now, or at least pre qualify you. And, you know, our vision is to partner with these green banks and help them be able to automate eligibility and kind of underwriting for these financing programs, you know, closer to the point of sale. So that's what we're Delivering we've launched in the northeast and really helped her contractors and her homeowners achieve that so far and are, you know building out towards the full vision from there

[00:33:43] Nate: And and you kind of mentioned starting in the in the northeastern and eventually wanting to work with the Green Bank. So Where are you in that trajectory in terms of your, I mean, you were only founded a year and a half ago, so the answer must be pretty early on, but it sounds like you have some customers already, so just tell us a little bit about where you are in, in the, in the art

[00:34:08] Samir: Yeah, we started and we are certainly an early stage startup also on our growth journey And but we're starting with a focus on state level really utility driven rebates starting in places like massachusetts, which has up to ten thousand dollars in rebates for a residential Heap pump project which is You You know, really can absolutely move the needle and drive conversion.

[00:34:28] And also in New York, it's up to 8, 000 in many places. And so there are large rebate programs in the Northeast, which can be huge sales drivers, but you really need to deliver them in the way that we're, you know, kind of described up front, where you can take this burden off the homeowner, manage filing, simplify the process of qualifying for them.

[00:34:47] And critically, Just deliver them truly as upfront point of sale discounts, not as something where a homeowner has to pay the full price, which in this case is eight to 10, 000 higher, find financing for it, float the money for a few months, and then get these rebates back. So that's what we've started with is helping our contractor partners deliver instant rebates by software that Guarantees eligibility for these homeowners at the point of sale, almost like turbo tax, giving them kind of simple tools to use as they're working with homeowners at the kitchen table and qualify for instant rebates.

[00:35:22] And then we've set up relationships with banking and other financing partnerships where we can directly finance these rebates. So we effectively lend the rebate money to the point of sale knowing that we're going to be paid back for it when it is process.

[00:35:37] Nate: and I'm curious as you've considered your first version and finding product market fit, it sounds like you've gone and talked to contractors first, is there a model where that you considered where instead of trying to go talk to contractors, you're talking to the consumers themselves and the consumers sort of asking their contractor to facilitate the, uh, the transaction using your software, what, what made you, I guess, settle on, on going the contractor route.

[00:36:11] And maybe that's the first question. And the second question would be if my contractor, if you haven't called my contractor yet, is, is there a way in a role for consumers in this to, you know, Ask that they use your software or help help get certainty that you are maximizing the, the rebates available in the transaction.

[00:36:33] Samir: Yeah, so we certainly explored and considered and still consider and think we could launch at some point a consumer facing solution as well, even just to drive awareness and that certainty and to make them more interested and likely to to adopt a pump. So that's something we could expand into. But we, you know, started by, you know, Interviewing hundreds of homeowners, hundreds of contractors, now probably thousands of maybe both and just really firmly feel that in general, the contractor is the center of this purchase journey where as much as homeowners are doing their own research and education and learning and and.

[00:37:12] Especially the listeners for heat pump review are probably very into heat pumps and the differences and kind of how to think about the lifetime cost of ownership. It's still in general a fairly urgent process or purchase that is not top of mind for most homeowners and when it happens, you just want somebody you can trust and they call the contractor to come into the home and tell them here's the best option for them.

[00:37:36] And that's where in many cases, these homeowners have longstanding relationships with their contractors and they've. Been their partner for years, and the contractor is the expert on obviously the equipment and the opportunities for the different proposals they could deliver and what's going to deliver the best comfort and the best experience for the homeowner.

[00:37:55] We just really want to empower that contractor with the tools around tax credits, rebates, financing, so that they can kind of have all those answers at their fingertips and deliver these point of sale rebates. So we really. Do see the contractors absolutely critical to this transition and want to give them all the tools to succeed and really even taking a step back.

[00:38:16] It is so hard to be a contractor. I mean, you're thinking about where we are right now. 110 degree heat. You're in the attic. It's such long hours. It's critical jobs for these, you know, really, in many cases, saving homeowners who need heating and cooling today. And. To ask them to be experts on technical specific specifications and I'm building customer relationships and working closely with our customers and also to be experts on the tax code and on utility programs that are changing every few months.

[00:38:43] It's just way too much to ask. So we're trying to take that off of their plate to help them and help the homeowners they serve.

[00:38:50] Nate: And then how does the software fit into the broader ecosystem of, of software that they use? My impression, again, as a consumer, I think for every single contractor I've had in my house, Related to heating, plumbing, electrical. They've each used a different piece of software to manage the customer relationship and to send out bids and to accept payments.

[00:39:14] It feels like a very fragmented landscape of, of software that are powering these small businesses. Maybe some of them use Calendly in order to schedule the appointment and Wix for the website. How do you think about your software Coral fitting into the ecosystem? And, and frankly, how do you think you might end up being a large player in this space that seems as though it has a relationship with software that is quite either fickle or fragmented ,

[00:39:53] Samir: Yeah, absolutely. So, although it is generally fragmented, There are a few platforms with really widespread adoption, so some of the big ones are service Titan or house call pro or on a call error. There are a large number of tools, but there are some, you know, very large ones that have really strong adoption, especially from a.

[00:40:16] The midsize larger contractors we've seen really embracing he pumps and incentives and also technology in general to deliver a kind of differentiated consumer experience. So we do think that integrating closely with these larger technology platforms is. Absolutely critical for us. We also, despite these tools that we're building, do not want to create extra steps and new platforms for our contractors to be flipping back and forth between.

[00:40:43] So as much as we can be natively embedded in their workflow and natively integrated in some of these software platforms, the better for us. We're already actively working towards that. And even from a product design standpoint, we're Our number one priority is reducing or eliminating any manual data entry, any extra steps, making this as easy as possible and really just done in the background without the contractor have to do more work.

[00:41:07] So that's how we're approaching it. We do think there are enough large technology partners which we can partner with you know, longer term to be embedded with their workflow and can really make this a seamless experience for the contractor.

[00:41:21] Nate: And then where, where are you getting paid in this transaction? So you mentioned in some cases you're fronting money. And so it's essentially a loan. And historically You mentioned with financing that there were these big fees that contractors were paying to even originate the loan. So are you getting paid by the contractors themselves in order to facilitate this?

[00:41:45] Is this showing up as a line item on my invoice as a contract? Consumer. And instead of getting 2, 000 back from my state I'm getting, you know, 1, 900 back. What does this look like?

[00:41:57] Samir: So we're paid entirely by the contractor because we're giving them tools to sell them more effectively and the contractors that are working with Coral are seeing conversion rates on sales increase over 15 percent already from offering the upfront rebates through Coral and then also from all the tools helping guarantee eligibility for these incentives and surfacing of the available incentives.

[00:42:20] So, That is creating a ton of value for these contractors in terms of driving revenue and incremental sales and because of that they're getting a huge amount of ROI out of even paying us a small fee for the software and for facilitating these transactions. The other piece of it is the status quo is, and just to be very direct Nate, we charge a small percentage of the incentive that we finance.

[00:42:45] So if we deliver a 10, 000 rebate as a point of sale rebate, we charge a small percentage of that. 10, 000 rebate. But compared to the status quo, let's say, like we opened with, they're selling a 20, 000 heat pump system through a traditional consumer financing partner. Those traditional partners are already charging dealer fees, in many cases that are 10 to 15 percent to the contractor.

[00:43:09] So we are charging way less than that to lower the cost from 20, 000 to 10, 000. So actually, Compared to what they would be doing without Coral, they just save a lot on fees by paying us you know, a fee in the ballpark of 5 percent compared to paying 10 to 15 percent that they would pay to the other partners.

[00:43:25] Nate: But to be, but to be clear at this stage, you're not packaging the financing. So you mentioned maybe you could get the invoice down to 6, 000, but that median household with only 5, 000 will still. Need to finance their heat pump so that that's not yet a part of the Coral story right now. As the product stands itself, you're helping lower that at the point of sale.

[00:43:52] But you have not yet added any financing products into the system. Is that correct?

[00:43:58] Samir: That's correct. But just to then show the difference for what we have today, today, let's say they sell a 20, 000 system, they have to pay, the contractor has to pay a 15 percent dealer fee on that 20, 000. Coral, we're delivering 10, 000 of that as an upfront rebate. So for the first 10, 000, they have to pay us a 5 percent fee.

[00:44:18] And then it's only a remaining 10, 000 that they have to pay the 15 percent fee on. So the total cost of the contractor significantly lower using Coral than, you know, their existing finance partners, but you're completely right. The next phase of the business is let's also solve the remaining 10, Let's help deliver that.

[00:44:37] Both to the contractor with a lower dealer fee than what they're paying today and to the end consumer with better pricing and better terms that they can qualify for more often. So that is absolutely really the first stage of Coral has been around these instant rebates and incentives that we're now have the software to help deliver and streamline the filing and financing them.

[00:44:57] And now we're moving to other green bank partnerships for the rest of it.

[00:45:01] Nate: Yeah, no, it seems like if, if you all can clean all that up, it will be a big win for consumers. I can only share, you know, my, my own personal journey where I saw if I went with this installer, they work with this OEM that has 0 percent interest for the first year. Maybe I. I can, you know, finagle that for 12 months, then move it into my state run program for the remainder of it.

[00:45:25] And it just seems like all of this could be wrapped into a single elegant product that, that would make life a lot easier that that combines yes, the incentives, but then also the various ways these, these financing products can play into one another.

[00:45:44] Samir: And that wrapping together, we think is really critical because both certainly the average homeowner and also most contractors, it's just not how it should work that you have to think about a tax credit separately from a federal rebate separately from a state level rebate separately from greenback.

[00:46:02] You just need to How can I pay for this system in the most cost effective way? And that should be one click or one process that manages all those different sub components for you. And that's exactly what we're trying to deliver. Just one holistic solution that's much easier for the homeowner, much easier for the contractor and someone like us can deal with all the complexity around that on the back end.

[00:46:24] Nate: Yeah. And it feels like it's been done before. Again, the process of buying a car, they've already figured out how to show that 7, 000 rebate back into the lease terms or into the loan terms. So you're walking out of there with a car with a single, single bill that you're worrying about. Doubling back, I guess, on where you see maybe financing going, here's a maybe more esoteric question right around when we're releasing your episode, we'll have an episode on demand response. These are assets that can earn the consumer money in the long term. And these are also products we talked, touched a little bit about heating as a, as a service in terms of what sealed is doing in the model, which basically acknowledges that the consumer might not have the money up front and might have a little bit higher capex as well, but long term, you're gonna have savings.

[00:47:28] So how are you thinking about incorporating these two dynamics into a loan product or, you know, a financing plus incentive product long term where the asset can be something that is definitely saving the customer money based on what they were doing before. But, but it is also potentially giving them a return on that investment through demand response programs as an example.

[00:47:54] Samir: With a ton of excitement. Long story short, I mean, we and actually, we talked a lot about federal programs, state programs. Demand response is a great example of a version of subsidy. That's now available for electrification. Similar is actually now heat pump carbon offsets for residential are being listed.

[00:48:14] And there are private companies that are buying these credits and also indirectly also subsidizing these. And another exciting one is insurance where many large insurers are proactively subsidizing building owners to replace their HVAC systems with energy efficient upgrades. Both because a proactive replacement is less expensive than having a break and have all this associated damage.

[00:48:36] And because many of them have net zero commitments that they can help reach by subsidizing where energy efficient upgrades. So there's all of these with demand response is a perfect example. Very new sources of. Future cash flows that could be accelerated to the point of sale demand response, and I'm extremely excited to also listen to the podcast with your guests is, I mean, there's such an opportunity to actually predict what some of these future cash flows could be in terms of demand response dollars, you know, over the next months or years.

[00:49:04] And if you can predict that as a forward looking receivable, you could be able to finance that as well and just tell the homeowner you get 500 off or 1, 000 off by enrolling in a demand response program that's going to deliver these savings over time. So I think there's a lot of opportunity and actually synergy there to partner with you know, ecosystem leaders around demand response and others to help make them more affordable for homeowners.

[00:49:27] Nate: Yeah. Cause again, it would not just help lower that upfront cost, but it would also to that end of simplifying things, you know, presently I have to worry about. Did I get paid the right amount from my utility for participating in one of their energy savings days and, and instead maybe I don't worry about that after the fact, I just realized that I'm going to participate in that and that's how I got my, my appliance at the cost that I, I got it at.

[00:49:59] So we'll both cross our fingers that that ends up being a big a big part of the future. We are almost out of time. I want to make sure if there's any additional things you, you think that we should touch on for the audience or things about Coral you want people to know about, and certainly if there's any calls to action for our audience, let it, let us know,

Conclusion

[00:50:22] Samir: Biggest call to action is if you're considering a heat pump upgrade. Ask and do the research and honestly email reach out would love to help. Like they're almost, they're most likely, especially once the federal rebates are available will be incentives that make heat pumps more affordable. And even though more and more contractors are getting educated on this, it's definitely not everyone and it's constantly evolving.

[00:50:45] So make sure to ask what are all of the available incentives I'm eligible for before you, you make a decision. And that's it. You know Coral and others like us in the industry are all here to help and try to make that easier. But That's really the main Call to action and and just think of heat pumps and think of the opportunity when you're at that moment of replacement The worst thing that could happen is if you're replacing your air conditioner or furnace or boiler anyway And you replace it with the legacy system when you have the opportunity for all these savings and incentives Just economic value as well as environmental value with the heat pump.

[00:51:18] Nate: well, that's a great place to leave it. I feel like we could have talked about a bunch of other things, but I want to let you get back to building this business because I want to see it succeed. So thanks so much. Really appreciate you coming on the podcast.

[00:51:30] Samir: Thanks so much nate. It was a pleasure Excited to come back one day. So thanks again

[00:51:36] Nate: This has been a production of Heat Pump Review. The show was edited by me, Nate Westheimer. Theme music is by AlisiaBeats . To support the podcast, please rate and review the show on Apple Podcasts , Spotify, or wherever you listen to the program. If you think someone would enjoy the podcast, please share a link to them as well.

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