Tapping the heat beneath your feet with Kathy Hannun of Dandelion Energy

Millions of American households rely on oil for heat. Growing up in New Hampshire, Kathy Hannun was familiar with this decades-old and environmentally-taxing approach. As part of Google’s innovation lab, X, she began unearthing a solution — indeed from underground... This week on How I Built This Lab, Kathy discusses how her company, Dandelion Energy, has made geothermal energy accessible for heating and cooling homes across the northeastern United States. Plus, Kathy explains why widespread adoption of geothermal heat pumps is important if we want to reach our climate goals. This episode was produced by Sam Paulson and edited by Casey Herman, with music by Ramtin Arablouei. Our audio engineer was Katherine Silva. You can follow HIBT on Twitter https://twitter.com/HowIBuiltThis & Instagram https://www.instagram.com/howibuiltthis, and email us at [email protected] mailto:[email protected]. See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Guy Raz?

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• 5:11Guy Raz?

  Hello and welcome to How I Built This Lab. I'm Guy Raz. So the ground under your feet could cool and heat your home for a relatively low cost. And it doesn't really matter where you live, because as you will hear in this conversation, once you dig about 200 to 500 feet deep, in most places around the world, the earth is cool, but also capable of providing heat. How this works, I will let Kathy Hannun explain in a moment. Kathy is the founder of a company called Dandelion Energy, and she's on a mission to use the natural thermal system that already exists below ground to regulate the temperature inside our homes and buildings.

• 5:54Guy Raz?

  It's a system, by the way, widely used in Sweden. And if she can get enough people to adopt it in the US, it could have a massive impact on reducing carbon emissions, and it could save people thousands of dollars a year. Kathy started thinking about geothermal heating and cooling systems back when she was working at X. That's the name of Google's innovation lab. Two of Google's most famous internal projects, Waymo, the self-driving car, and Wing, a drone delivery system, came out of X. Dandelion Energy was also started there and eventually spun out as a separate company. But at the beginning, Kathy and a team at X were given an open-ended assignment. Dream up big ideas that could make a significant impact

• 6:39Guy Raz?

  and then try to see if those ideas were workable.

• 6:42Speaker 01

  I was just hunting around for, what is a project that would make a big impact on climate? And buildings are responsible for about 40% of greenhouse gas emissions. Heating and cooling is more than half of that. And it was clear then, as it is now, that heat pumps are going to be the answer. That's the way you electrify heating efficiently. And there are two types of heat pumps, air-source heat pumps and ground-source heat pumps, also called geothermal heat pumps. And they both have a big role to play. But what we did was we did an analysis where we just ran the hypothetical.

• 7:27Speaker 01

  If all homeowners, we focused on homes, residential, switched from using whatever heating fuel they use today to using heat pumps, geothermal or air source, how much value would be created? So just looking at the difference of operating cost. And it was actually so striking and so surprising how much value would be created by switching people from what they use today to geothermal.

• 7:56Guy Raz?

  So just can you quantify what you discovered? Like, what did you find?

• 8:00Speaker 01

  If you look at, for example, in the Midwest, comparing using a fuel to using geothermal, your operating cost, so how much you have to actually spend to heat your home, it's maybe a fifth with geothermal. It's similar in the Northeast. And emissions-wise, it's similar. It's a huge decrease.

• 8:24Speaker 01

  And so then, of course, it's like, well, why, why don't people use this if it's so inexpensive and so clean? And the answer is very clear. It's just geothermal heat pumps are very expensive to get upfront. And we're very, not just expensive, but like for most normal people, very difficult to know how you would even go about getting one because it was such a uncommon product.

• 8:52Guy Raz?

  Yeah. And when you have heating oil, which many people in the Northeast do, it's like having, it's like basically paying for a subscription service.

• 9:02Speaker 01

  Yeah, I think you're exactly right that you have a subscription to heating oil or natural gas or propane that you just have to pay. Because for most people, it's not an option to just say, you know what? This is getting a bit expensive.

• 9:15Guy Raz?

  I don't want to pay for this anymore.

• 9:16Speaker 01

  I'll be cold. You know, it's like, probably not. You have to pay it. Whereas if you invest in putting in ground loops, and we can talk a little bit more about what that entails. But if you invest in that infrastructure so that you can access all of that free heating energy that's already in your yard, then you can draw on it essentially forever because the ground loops are going to last as long as your home.

• 9:40Guy Raz?

  Yeah, I guess I should mention, it's not a new, it was not a new technology. This is not something that you guys were, had invented. It was something that you were exploring because it exists. There are countries like Sweden where this exists already, where people use this technology. So let's talk about how this works. Explain how a home is heated and cooled with a geothermal system.

• 10:03Speaker 01

  So you basically need two components. You need what are called ground loops, which are just plastic pipes buried in the ground. They typically extend 200 to 500 feet into the ground. And they're only inch and a quarter in diameter. So they're thin, but they go pretty deep. So you'll have one or two of those. And then you'll have a heat pump, which essentially looks like a furnace. And it goes where your furnace was. And that will be typically in your basement or in your utility closet. And then you need to connect them so it can feed water to that heat pump in the house.

• 10:41Guy Raz?

  So essentially, there's water running through these tubes under your home. And the reason why it's so deep underground is because

• 10:51Guy Raz?

  The ground is more or less around 55 degrees Fahrenheit all the time.

• 10:55Speaker 01

  That's right.

• 10:56Guy Raz?

  So help me understand, how do these tubes with water underground heat your home? How does that work?

• 11:01Speaker 01

  So it's the same exact technology that you would find in a refrigerator or in an air conditioner. But the way it works is that 55 degree ground will bring that water running through it to 55 degrees. Then that 55 degree water will go into the heat pump and pass through a heat exchanger where it will exchange its heat with a refrigerant. That refrigerant's been specially selected to expand and sort of vaporize at 55 degrees. And then it's run through a compressor, which uses electricity to compress the refrigerant. And so basically, when you compress that refrigerant, the temperature goes up. So now you have a very hot refrigerant.

• 11:46Speaker 01

  You can pass that through another heat exchanger with the air that you're going to send through your house. So it heats the air to, let's say, 100 degrees or so. And then you just send that air through your house as you normally would. It sounds really complicated when I say it like that, but it's a very common technology. Again, every air conditioner, every refrigerator works in this way.

• 12:13Guy Raz?

  And to cool your home, it actually removes heat from the house? Can you, can you explain that?

• 12:18Speaker 01

  Yes. So cold is just the absence of heat. So the way an air conditioner works, or the way a geothermal heat pump works is you'll have the whole system run in reverse. And so you use that refrigerant again to absorb heat from your home. And then in the case of a geothermal system, the hot water where the heat has sort of been dumped is running through that 55 degree ground and dissipating into the ground.

• 12:48Guy Raz?

  All right. So you know that this is possible, not just possible, it exists in parts of the world. This is in 2015. But there's maybe more than a slight challenge, which is the drilling equipment to do this in a residential setting was nonexistent, at least in the US, right? Like, to drill down under a house without disturbing the house and installing these pipes, you'd have to bring like a big rig-sized drilling rig. And most homes can't accommodate that in their backyards.

• 13:16Speaker 01

  That's right. The challenge was the types of drilling rigs that people used for geothermal in the United States were the same rigs that were used for water wells. And they work well for rural homes with a lot of land and homeowners who don't mind if a giant truck with a very heavy drilling rig drives onto their yard and sends mud everywhere. But a lot of our homeowners did mind and also didn't even have the land. So it was kind of-

• 13:47Guy Raz?

  They're densely packed, right?

• 13:49Speaker 01

  They are.

• 13:49Guy Raz?

  These homes, yeah.

• 13:49Speaker 01

  Yeah. So it's just like, you couldn't even start. And so we needed to find a way of putting these ground loops in that was compatible with just a suburban home where, you know, you wanted to keep the areas neat.

• 14:03Guy Raz?

  So how did you do that? What did you find?

• 14:06Speaker 01

  This was something that we iterated on quite a bit in the early years. We experimented with a few different types of rigs. But we ended up taking a trip to Sweden, which you mentioned. It's sort of the geothermal capital of the world. 20% of homes in Sweden use geothermal heat pumps. Pretty much all new homes going in use them. So they've managed to bring the technology to scale. So we made a trip to Sweden and the companies that do this there were actually extremely helpful in sort of teaching us, here's how we do it. Here's the equipment we use. Here's our process. And we've imported most of that back to the United States and really adopted the same

• 14:50Speaker 01

  rigs they use over there.

• 14:52Guy Raz?

  All right. So you start to figure out how to make this work. And you had this idea and it started to get some traction. And so you sort of proposed that this become a startup, a separate company.

• 15:06Speaker 01

  It was becoming increasingly clear sort of over 2016 that this is an idea that could go somewhere. A lot of the checks we do on is this going to work were coming out pretty positive, like surprisingly so, you know, I was used to going through so many ideas and finding sort of the thing that seemed hard to overcome. But with this idea, it was like the more I looked, the more convinced I became that there was nothing fundamental holding this back. But the issue was, you know, X really looks for a very specific type of project. Their ideal project is something like the self-driving car, Waymo,

• 15:45Speaker 01

  where you have to invest a lot of money upfront to create ideally something software or software adjacent like a self-driving car. And then, once you solve that technical problem, all the other problems that you'll have in starting the business are very minor compared to that central problem. You know, like, if you can really make a car that drives itself perfectly, you'll be able to figure everything else out and it will be an incredible business. And for geothermal heat pumps, it involved things like drilling deep holes in homeowners' yards. It was operationally intensive. And I should also mention, you

• 16:29Speaker 01

  didn't need a billion dollars upfront to get started. It was the type of problem that seems like it would benefit a lot from iteration. And you could actually get started without a lot of capital. So it just was better fit to be a startup than to be something incubated with an X.

• 16:51Guy Raz?

  We're going to take a quick break, but when we come back, Kathy shares how dandelion energy flopped out of the gate, but eventually found a model that worked. Stay with us. I'm Guy Raz, and you're listening to How I Built This Lab.

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• 20:39Guy Raz?

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• 21:00Guy Raz?

  Welcome back to How I Built This Lab. I'm speaking with Kathy Hanoun, founder of Dandelion Energy. It's a company that's making geothermal heating and cooling accessible to homeowners. All right, you mentioned starting it with not a lot of capital. I think you raised about $2 million, which might sound like a lot to some people, but for this project, it is not a lot. And so, but from what I've read, the first year, and maybe two, was rocky. It was not, did not go as planned. Because I guess initially you sort of decided to try and contract with existing HVAC companies that focused on traditional HVAC systems, not geothermal.

• 21:40Guy Raz?

  I don't know, it was just you ran into a lot of challenges. Can you, can you talk a little bit about them and enumerate them?

• 21:46Speaker 01

  Yes, we ran into so many problems. I guess to start, the hypothesis we had when, when we spun out and started the company is we're going to create a marketplace. We'll contract with HVAC installers. We'll make this available to homeowners. We'll match homeowners that want GEO with these contractors who we are going to teach to install it. We'll provide the heat pump and do some of the drilling because we were testing some different ways we could approach that problem at that point. And that will be the company. So we raised the money. I moved to New York. We made the commitment. It's sort of a one-way process.

• 22:27Speaker 01

  And then it became obvious that that vision was not going to work. First of all, the, the partners, the HVAC contractors we had chosen were not used to selling geothermal, of course, because they did not sell this product. And so it quickly became clear, okay, we're going to have to sell this product. So we hired a sales leader. Then we realized, you know, even when we sell it and pass it along, like these contractors need a lot more support than we're giving them, and it's not their priority because they have their own business and their own customers that they're always going to treat before ours. And so that led to a lot of customer

• 23:11Speaker 01

  experience issues, as you can imagine. And the economics of it were also very difficult.

• 23:17Guy Raz?

  Because it was like fifty, sixty thousand dollars upfront to install this system in an average home at the time, right?

• 23:23Speaker 01

  Yes, that was the typical price of GEO, actually quite a bit higher than that in the markets in New York that we started in. We went in with a much lower price, but we were not making money at that point in the company. But I will say the one thing that was going really well, even from day one, was people wanted to buy the product. And to the upfront cost point, we launched with a financing option. So from the beginning, homeowners that signed up with us would come out ahead, like you could come out cash flow positive against fuel oil. And there was just like overwhelming demand, which is great, but also in itself created

• 24:06Speaker 01

  problems for us because we just didn't have the contractor network to support that demand. And we had mispriced at the very beginning. So we were also, the more we sold, it was sort of like the deeper the hole we were digging for ourselves. So those were the early years.

• 24:23Guy Raz?

  So how did you solve it? I mean, what did you, I mean, presumably, depending on these outside vendors and companies to install the product wasn't going to work.

• 24:33Speaker 01

  Yes.

• 24:34Guy Raz?

  But you also had, you didn't have, you know, huge buckets of cash to build out your own team of installers. So what did you do?

• 24:44Speaker 01

  I remember this decision point because I was actually on a hike with my dad and my mentor, Dan Yates, who is chairman of the board at Danlin, he called me and I took his call and we sort of acknowledged this truth to each other, like this, this model isn't going to work. And it was kind of clear that if the subcontractor model isn't going to work, really you don't have that many options if you want to keep going, except for just trying to in-source that workforce, you know, like what else are you really going

• 25:24Speaker 01

  to do? So we had been, or at least I should say I had been trying to avoid that truth for some time because it was frankly intimidating to think about leasing a warehouse, hiring electricians, plumbers and HVAC professionals, figuring out all the vehicles, right? Like, I didn't think of myself as somebody who could know how to run a true HVAC company in that way. But we had this call and it was kind of like, well, this is what it's going to take. And so we made the decision to do it. And I'm really glad we did because it allowed us to grow the company, improve the customer experience so much, improve

• 26:08Speaker 01

  the economics of our installs. We learned so much more quickly because we were actually doing all these things ourselves and truly understanding what all the problems were. So yeah, it was a very meaningful decision point in the history of the company.

• 26:23Guy Raz?

  So that meant you had to raise lots more money.

• 26:25Speaker 01

  We did have to raise more money. It's true that having a model where you're in-sourcing the labor is more capital intensive, but the economics of each install were also much better. So it ended up being a financial net positive for the company, even though it did require us to, yeah, raise the money we would need to lease the warehouses and the vans and that type of thing.

• 26:53Guy Raz?

  Okay, so a- after this big revamp to the company, what did the customer experience look like?

• 26:59Speaker 01

  Our promise to the homeowner then and now, to be honest, is just, you're a homeowner, you just want to buy a heating system that works. And so we'll come in, tell you how much you'll save by switching to GEO, in the same way a solar company, for example, would tell you, this is your return on investment, this is how much you'll save. And then we'll do everything. We'll remove your furnace, do the right design for the GEO system, oversee the drilling, or today, we do it ourselves. We today do everything ourselves. We install the heat pump, uninstall your furnace and air conditioner, and then get the whole thing permitted and inspected. We'll handle the rebates for you, right? Like, we just want

• 27:40Speaker 01

  to make this simple for the homeowner, so we take on the complexity ourselves.

• 27:46Guy Raz?

  All right, so you start this, basically building this vertically-integrated company. How were you able to bring costs down? Because initially, they were 60, 70, 80,000. I guess now it's, it's sort of averaged about 25 to 30,000. Is it just a more efficient process or what?

• 28:04Speaker 01

  There are a few different things. Certainly, the policy landscape has been a great tailwind for us, starting this company.

• 28:13Speaker 01

  You know, Trump was president, oil was relatively inexpensive. People weren't talking about heat pumps. I feel like I could have never imagined how much would change in our favor in the policy landscape since that time. So there's now a 30% federal tax credit. So for every homeowner who buys geothermal, they just get 30% off of the price from that. The utilities have incentives that are worth $10,000 to $20,000 that go to the homeowner. And there's just like so much talk about heat pumps all the time, which is great. So that has been hugely helpful. But in addition to that, I think one of the things that was making geothermal very expensive

• 28:57Speaker 01

  in the past in the US is that because it was so niche and so infrequently done, every time a geothermal system was put in, it was kind of like a highly customized one-off project. There was no assembly line. There was no company who is trying to figure out how to standardize the process and then do every step of it as efficiently as possible. And that is the role that we are playing. So to give one example, only 18 months ago, we had two drilling rigs as dandelion, just small rigs that we've adapted to be optimized for geothermal in small suburban residential yards.

• 29:39Speaker 01

  So we went from having two to now we have 14 running full time. And this business is all about throughput. So if you have your rigs and your people and like all of your assets constantly working to put in systems, then you're able to amortize that overhead over many, many, many more systems. And the cost is much, much lower for homeowners.

• 30:02Guy Raz?

  So once you install the system, you're caught, and let's say it replaces fuel oil, right?

• 30:12Guy Raz?

  Your costs to heat and cool your home are just the electricity cost to run the heat pump.

• 30:17Speaker 01

  That's right. Yep, that's right.

• 30:19Guy Raz?

  And how long does it take to install it? I mean, if somebody's like, yep, let's do it.

• 30:23Speaker 01

  Mm hmm. The actual work that takes place at the house, you need one day, two days ish to put in the ground loops, depending on how big the house is and how many ground loops are required. And then installing the heat pump typically also takes about a day, though some homeowners get a water heater, ductwork, or things like that, and it can take a little bit more time. In terms of our wait times, they've varied. At our worst, we forced our customers to wait over a year in some markets because we had so much demand. But now we've managed to bring it down. It's more like four months. So we've made a lot of progress there.

• 31:04Guy Raz?

  We're going to take a short break. But when we come back, Kathy breaks down what makes geothermal systems so versatile and efficient and why we need them if we want to meet our climate goals. Stay with us. I'm Guy Raz, and you're listening to How I Built This Lab.

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• 32:13Guy Raz?

  Welcome back to How I Built This Lab. I'm Guy Raz. My guest today is Kathy Hannun, founder and president of Dandelion Energy. To be clear, I mean, this is like this dramatically reduces carbon emissions, right? But it's not totally carbon neutral. I guess it could be if you were using like solar power to power your home, right? Then it would be totally carbon neutral.

• 32:33Speaker 01

  That's right. The way to think about the carbon neutrality of geothermal, it's similar to electric vehicles. Without heat pumps, you have just millions of point source emissions. So every furnace or every boiler is emitting its own stream of emissions if it runs on gas or oil or propane. And at least in my opinion, the only practical way to solve the problem is to electrify the entire fleet of heating equipment. And that will be done almost exclusively with heat pumps. And then what you've done is, yes, they still use electricity to run, but then you can just focus on cleaning up the grid.

• 33:18Speaker 01

  And once the grid is cleaned up, you'll have a totally carbon-free system.

• 33:22Guy Raz?

  I'm curious, why, in your view, is this system, is the geothermal system, better or more efficient than like, you know, heat pumps that use air, for example, to cool and heat a home?

• 33:36Speaker 01

  Yeah, I mean, I don't want to say one is necessarily better than the other in general. I think that in some cases, air source is better, and in some cases, ground source is better. But let me tell you when ground source or geothermal is better. So for one thing, especially in places where it gets cold, the cost to operate a ground source heat pump is about half of the cost to operate an air source heat pump because you have access to that constant temperature ground. And that's allowing you to always run your heat pump at high efficiency. Air source heat pumps run at very high efficiency

• 34:17Speaker 01

  in mild weather, but when it gets really cold, they lose efficiency. And that means that if you step back and look at sort of the more societal view, one of the challenges that we'll face when we convert all of our heating systems to heat pumps is that Peak demand will become a problem in the winter. And with air source, this is especially challenging. So a study was done for the state of Rhode Island of just like, what will happen? If you convert all your heating systems to air source heat pumps? And the peak demand on that grid would double. And the reason for that is on the coldest day,

• 35:01Speaker 01

  all of the air source heat pumps will be operating at their least efficient. And they'll all do that at the same time. Whereas with ground source, peak demand would increase by 17%. So it, it has that benefit too, where the ground is serving as almost a buffer. You're not using as much electricity and you're certainly not using as much on the peak days. And then the last thing I'll say is that many homeowners in the Northeast today that decide to get an air source heat pump, use a fossil fueled system for backup. And that allows them to make sure they have enough heating on the coldest day.

• 35:39Guy Raz?

  Right.

• 35:39Speaker 01

  You know, with our customers, none of them have a, you don't need a backup. You don't have it. So that's another advantage. It's just a hundred percent heat pump.

• 35:49Guy Raz?

  And this kind of system can work anywhere in the world. I mean, you could, you could install it in a home and in Death Valley, where it gets freezing cold in the winter. And obviously it's one of the hottest places on earth in the summer.

• 36:02Speaker 01

  Yes, you definitely could.

• 36:05Guy Raz?

  It's sort of like, I mean, I think about the ocean, right? Like the ocean is stormy at the surface, but if you dive down now 20 meters, it's calm. Basically wherever you go around the world and you dig two to 500 feet down, it's going to be a more or less a constant temperature of around 55 degrees Fahrenheit.

• 36:26Speaker 01

  Yeah, as you go down, you basically get to the average air temperature in that location. So exactly as you said, the temperature varies so much at the surface with the winter and the summer. But once you get, you know, 10 to 500 feet underground, it's pretty constant. And that's exactly why ground source heat pumps work so effectively.

• 36:49Guy Raz?

  So essentially, there's, and when we say 55 degrees, I shouldn't call that cool. I mean, I'm in California. So when it's 55 degrees here, people are wearing like arctic gear. You know, it's gotta be like 80 before people wear shorts. But 55 is warm. That is warm and cool. Like you can basically create, as you described, heating and cooling with that, that temperature.

• 37:15Speaker 01

  It's very mild. And yeah, to your point, when I was first pitching the company with our initial seed round, and I would pitch to venture investors in Silicon Valley, I didn't get a lot of traction. When I would go to New York or Massachusetts based investors, that ended up, those were the investors that ended up doing our seed round, just because it's just, you have a different relationship with heating especially, but also cooling. It gets a lot more humid and hot in the East Coast.

• 37:51Guy Raz?

  You've raised about $135 million total, and you are mainly right now focusing on New York, Massachusetts, and Connecticut. A lot of demand. Tell me what the expansion plan is. I mean, I have to imagine that you want to get bigger, you want to be national, international, and probably people from other states are going on your website and they're saying, yeah, I want to do this.

• 38:15Speaker 01

  Absolutely. I guess first I'll say, one of the things that I just want to be upfront about at this part of my journey in the company is like, I don't even feel comfortable saying I've raised 135 million. I have built a team that, you know, I ended up in 2020, hiring a CEO for Dandelion. Now I'm president and run sort of our product and engineering groups. We have a very talented management team that has taken this idea and built it to where it is today. And our plan for expansion.

• 38:53Speaker 01

  Look, like so many more states are realizing we need to solve this heating problem if we're ever going to meet our climate goals. And the way to do that is heat pumps. And a lot of utilities don't want their peak demand to double. So people are starting to take geothermal heat pumps much more seriously as a tool to do this, especially as we've been able to bring the cost down so that the economics make sense in more and more places. So we're doing a few things. One is, one of our investors in our most recent round is Lennar, the home builder. We're really interested in starting to get into new, new homes, new construction. Why are we building new homes that have furnaces and boilers

• 39:36Speaker 01

  when we know we're just going to have to replace them with heat pumps? We should immediately start building new homes with heat pumps. And new homes is the ultimate case where you can just put in like 100 ground loops, 200 ground loops at a time, and it's very, very cost effective. We're also constantly working on policy, so making more and more states heat pump friendly. And then, of course, we're just continuing to gain efficiency and sort of build our own operational capacity so we can bring our costs down and make the pricing work out for more and more people across the country.

• 40:15Guy Raz?

  Kathy Hannun, thank you so much.

• 40:17Speaker 01

  Thank you.

• 40:18Guy Raz?

  That's Kathy Hannun, founder and president of Dandelion Energy.

• 40:24Guy Raz?

  Hey, thanks so much for listening to How I Built This Lab. Please make sure to click the follow button on your podcast app so you never miss a new episode of the show, and it's totally free. This episode was produced by Sam Paulson with editing by Casey Herman. Our music was composed by Ramtin Arablouei. Our audio engineer was Katherine Silva. Our production team at How I Built This includes Alex Chung, John Isabella, Chris Messini, J.C. Howard, Liz Metzger, Kerry Thompson, Carla Estevez, and Elaine Coats. Neva Grant is our supervising editor. Beth Donovan is our executive producer. I'm Guy Raz, and you've been listening to How I Built This.