Philipp Schröder, Co-founder and CEO at 1KOMMA5°: Delivering the cheapest and cleanest electricity in the world

0:00Philipp Schröder:Hello and welcome back to the Scaling Europe show. I'm Seb Johnson. Today I'm joined by Philipp. Philipp is the co-founder and CEO of 1.5. 1.5 is one of the most exciting companies in Europe, insanely fast growing. Philipp, how are you doing today? Excellent. Glad to be here on your podcast. Finally, I'm a subscriber. Love it. Well, thank you for joining me. It's great to have you. Can you describe in your own words what it is that you've built at 1.5? yes i can um so 1.5 is basically providing a full stack tool in order to deliver the cheapest and cleanest electricity um in the world so this is basically what we do and in order to deliver the cleanest and cheapest electricity ever before um we actually solve two technical problems one is we believe every building in the world should be um electrified meaning that you switch from oil heating, but also from fossil combustion engine mobility towards electrification.

1:02In order to do that, we have deployed a platform that allows us to electrify homes and buildings at scale. So we are right now electrifying tens of thousands of buildings simultaneously. So that's the first thing we are doing at very low cost. And the second thing that's even more exciting is we connect those assets that we are actually building into those homes via happy day i which is a basically an automation layer that has figured out a way to automate all energy processes in a way that we automatically buy electricity when it's the cheapest so and that's the second pillar of our business we have so essentially we can provide the cheapest electricity to our customers at all times and really important to us is while we do that we fix one of the largest problems in energy which which is to bring harmony within volatility of renewable production and also consumption right i mean we see this with the ai boom right now there's ever more hunger for electricity the grids are a bottleneck and our technology is helping to electrify but also create balance between production of power and consumption and that's what we do and in the end customers do book our service because they actually get the cheapest and cleanest electricity at all times you've got hardware and software

2:28Philipp Schröder:right and it's and i think it's you maybe talks about heartbeat that's like the the software element of it you've got the almost like electrical installation part of it as well can you talk a bit about the business model you know how do you make money given you're running a hardware business in parallel with the software business at the same time yeah first of all in in order to basically um to to get to the point to always have the cheapest and cleanest electricity you need to find a way how to scale electrification and we started as a company to work out that problem first so we wanted to have a um a solution that works from finland to australia to from spain to germany um and and actually can be scalable global and the way that that we can actually actually make money is obviously we are selling hardware assets we have a gross margin of about 40 and what what we like even more is the the system that we were that we've built is basically it's a workflow um ai model that allows us to do anything from customer acquisition all the way to electrical planning to fulfillment to installation in a very broad way which allows us to address every building and to have a tailored solution for every building this allows us to have a larger total addressable market when we sell hardware solutions it also allows us to have a higher gross margin and what we see in that hardware segment is we see that customers want the one-stop shop so if they are i always say like if you get into solar or if you get into electrification it's a bit like getting a tattoo you want another one right so so how do we make money we are selling you the first system this is the hardest that's how we acquire a customer first and then we see that our customers basically start buying additional electric electrification devices from us and we make a hardware revenue of almost 750 million and we are profitable in that we have a very healthy gross margin on that and then once we have installed the hardware piece, Harpied AI comes into play because once you start operating those systems, we deliver very low electricity cost and that creates a flywheel.

4:37So customers tend to see, oh, my heat pump is operating, my air conditioning is operating at 10 % of the cost that I had before. And then they obviously realize that the electricity is so cheap that they want to use it for an electric car, for example, as well. So we create a flywheel, we make money on the hardware side, but then we start making money on the subscription side so consumers are um getting a heartbeat subscription it's a monthly fee um and we also participate in part of the we also take one cent of the kilowatt hours that they use from the grid which we basically optimize right so this is so we make money from the hardware and then we make continuous continuously actually make money from a flat subscription and on top of that we have a markup of one cent of each kilowatt hour that we actually deliver to the metering point.

5:26That's how we make money.

5:27Philipp Schröder:And why did you choose to do the subscription model? Because it's quite unusual in this industry. Yes, I think that, I mean, there are many reasons. The first one is we like to explain to our customers that we are the last energy supplier they will ever need, because they will always, by definition, will get the cheapest electricity. There's no arbitrage in there. They can see on their app how we procure for them and there's no hidden margins in there so we take a subscription because we want our customers to trust us that they will never need to change energy supplier ever again electricity supply ever again because by definition we guarantee that no one can give you a cheaper price on the metering point than we can and to make that very credible we show in our app how we procure you see the market data flowing through you see when we actually procure electricity and you see how you actually eventually make money by also selling electricity when the price is high back to the grid so consumers understand that you know we basically replace the entire 100 year old electricity utility business and of course in return we thought of like what's a fair way to recoup our our investment and that's the subscription right so we want to be transparent That's the first reason.

6:40And also, we believe that it is the fairest and also the most, let's say, understandable way of pitching to the customers. Customers understand that they pay 20 euros a month. And for that, they will always get the cheapest electricity. That's a very easy pitch.

7:00Philipp Schröder:And do you see it reflected in your retention rates when you talk about being the last energy supplier? Do you see people really staying? we have um we have nobody leaving the system um and but there there's a very easy explanation to it um if you are um if you are part of the ecosystem and you and your systems are compatible with um heartbeat ai there's a relatively high stickiness you know if you have a smartphone you might change the smartphone every two years and you make a decision whether you leave apple or you leave Samsung and you go into another ecosystem. If you buy a heat pump, which is compatible to Heartbeat AI, the likelihood that you will rip out the heat pump or the air conditioning system that you just acquired and installed or battery or charger is very low just to change the supplier.

7:52On top of that, the pricing that we can actually offer is so low and is also embedded within guarantees and warranties that we are giving towards our customers that we have not seen anyone unsubscribing unless there is a technical reason, for example, they want to rebuild the home, something like that. But we have no, actually we have zero people leaving the systems.

8:16Philipp Schröder:And does that enable you to be aggressive on customer acquisition costs? Like the master plan that we, let's say the challenge for us was we had to figure out first, how can we actually, let's play this through. We send you the box, Sebastian, right? We send you the box and you get the heartbeat box. Now, the likelihood that every system in your home is compatible is very low. We have a high compatibility, but it's not 100%. And also, even if you have a compatible air conditioning, Daikin, for example, is compatible, you would like to transfer the benefit also towards heating, also towards mobility.

8:54So we always came to the same conclusion. if you are giving customers heartbeat it's a little device we send you we hook you up to our cloud we start optimization customers at some point want and need to have the home electrification service so you we we ran pretty fast into the reality check the customers at some point said great i love it my air condition is connected i see the price is very low for my air conditioning but how can I adopt the same for my EV, for my heat pump? So we understood that from the beginning, we needed to first solve the issue of having home electrification services available as well.

9:36Otherwise, you lose customer potential. We have solved this now, and now we are at a critical point in building 1.5 because we do two things at the same time. We are opening our fulfillment platform. What does that mean? We used to have only full-time hired people on our own installation stack. So we have thousands of installers on our payroll. But now what we do is we are Uberizing the whole platform. So we're entering new markets and we are having certified installers who use our stack of fulfillment, of planning, of quality assurance to grow faster. So this will allow us to scale faster now.

10:17And the second, even more important step is we have now opened Heartbeat AI as an independent platform. So we have just today signed a partnership with a company called Kostal. They have millions of customers globally that are now compatible. So we are basically getting more and more manufacturers, but also energy companies that become compatible to Heartbeat AI. So we start adding their customers into our heartbeat stack, which will allow them to immediately improve their cost situation. But obviously, they also bring new customers into our ecosystem that might end up buying hardware. So the flywheel, let's say, is being boosted now, right?

11:04So this is what has changed. So yes, customer acquisition has been a lot harder at the beginning if you have the full stack only internal. now we are opening both the installation platform business and heartbeat ai at the same time and we already see those flywheels actually work well that's really cool yeah so i guess we're just

11:23Philipp Schröder:like expanding both markets simultaneously and hoping that they then feed into each other we already see that they do feed in to each other so we see for example we see customers who who buy hardware from us via our installation platform and are more likely to buy another electrification device but if they add heartbeat they are even more likely to increase the speed so if you have somebody who's just bought let's say air conditioning from us or heat pump from us or charging from us they are in themselves already more likely to buy another part a solar system a battery from us if they activate heartbeat the cycle increases dramatically so they don't it doesn't take years for them to rebuy but it takes them months to rebuy and that let's say purchase is custom acquisition free so you have no custom acquisition cost so yes both flywheels are generating new customers for each other and they also decrease the time span for an additional purchase so we have actually we see now um already in the next years all existing customers will overtake um in revenue and profit profit contribution new customers and that's really important for us right because if you if you always have to actually acquire new customers for the hardware business this is a very very difficult business model so what we see and what we're also working towards is to actually have the lion's share of revenue and profitability coming from the existing base of customers of the ecosystem.

13:01And that's a fundamental change when it comes to profitability, especially.

13:07Philipp Schröder:Yeah, amazing. That's when you get to, I guess, the real recurring revenue as opposed to one-off installation. Can we talk about the virtual power plant? Because I know that there's some news around that. That sounds really cool. For people who aren't familiar with it, can you kind of give a brief explanation of what it is and how it links to Heartbeat? I think in simple words, it means that we literally automated the entire 100-year-old energy stack. So when you think about energy trading, intraday trading, day-ahead trading, but also billing, power supply, all of this is automated and the AI makes sure that you always get the cheapest prices.

13:43Very simple. We buy electricity when it's cheap and we have a forecasting system to do that, whether data-based, consumption data-based, individually optimized to the metering point of the customer and we are reselling electricity out of batteries and EVs back to the energy market when the price is high. And so in Sweden, in the Netherlands, in Germany, in Denmark, we actually have 25 % of our customers are having sufficient income from reselling electricity to the grid to cover their entire electricity usage and basically have zero cost when it comes to their own electricity consumption. And I think in simple words, 100 years of energy processes have been automated and ai helps us to do the job that in the last 100 years was basically different analog layers and service providers and and and now you can benefit from from basically we basically treat every customer like there were a nuclear power plant in terms of being generator of power and at the same time as if they were a large industrial plant yeah so if that's the accuracy how we forecast them and we do it individually so it's not a pooling it's not a virtual power plant pooling where you pool chargers and then you just load with the chargers and discharge and charge or where you take lots of air conditionings and aggregate them it's actually we are optimizing the individual metering point just for you so So every customer is individually optimized, individually participating at the electricity market.

15:22And that generates very surprising and very promising returns. And as I said before, what we like about this business model, it's not an arbitrage model. It actually helps us to solve the greatest issue we have in Europe, which is that sometimes there's too much electricity from renewables. Nobody can actually use it. so they have to curtail it there's negative prices because nobody you have to move power through all the way to France it's very expensive to transport and we can help with those decentral units to basically just absorb the free access power and incorporate it make it useful for our users and at the same time allow the power generators to actually sell it right so it's both it's a great model in order to reinventing energy or electricity, but it also is an infrastructure project because it's an end-to-end optimization from power generation to consumption.

16:24Philipp Schröder:Yeah, when you explain it, it sounds amazing, right? And this is not a small amount of energy, right? No. Can you talk about how much and how you scaled that so quickly? I mean, we're in the fifth year since founding. In the first two years, we have been very focused on building the installation stack. And in the last two years, we've been very focused on building heartbeat AI as a full stack energy optimization layer. And we have now surpassed one gigawatt in capacities that we manage. And it's basically a fully agnostic flexibility lever that we can apply to the benefit of our customers to absorb, to trade, so we can stabilize the grid.

17:09that's called Frequency Containment Reserve. We are qualified for that in Sweden. So we get money just to be in the reserve, to basically hold our customer assets available to stabilize the grid. So that's a passive income depending on the market. And then obviously we can open and close positions in a day ahead and intraday market. And one gigawatt, just as in comparison, is a nuclear power plant, a large one. So we have now aggregated capacities that are equal to the capacities of one modern, newly built nuclear power plant. And that's just the beginning. And I would say that we, you know, in order to have critical mass, to really have an impact on the European copper plate, so the European power grid, which is a very large grid, will probably require about 20 megawatt, which would be 20 nuclear power plants.

18:03And that's the business plan we have for the next couple of years.

18:06Philipp Schröder:And how will you get to that? we see now that the flywheels are working so we see that customers who have a battery customers who have a solar system customers who have a heat pump customers who have air conditioning or a or a um evie they simply subscribe so they just come through the funnel of heartbeat and they say you know please send me a device they buy the device and if their charger is compatible if their battery is compatible they can start right away so we have basically the capacity is being added per subscription. And every customer brings about 10 to 30 kW of capacity into the community, if you want, into the pooling.

18:50So that's one large, let's say, capacity generator. And the other one, obviously, is we also sell hardware assets directly, right? So we also have an installation business where we simply sell the assets. So we have two channels that are generating at an exponential growing pace capacity to heartbeat AI.

19:12Philipp Schröder:And do you have a visibility of either how many customers you would need, how much capacity you need, how much hardware you need out there to kind of get to that target where you do affect European energy? Yeah, I would say we affect it already. So it's the largest virtual power plant. I don't like the description of virtual power plant. It's like a buzzword nobody really understands, but i would rather say we have 20 gigawatt we have one gigawatt in flexibility services available so we can shift loads we can shift one gigawatt and bring it in every time zone we want wherever it's useful to discharge or charge so that that's what we have that's already the biggest you know the biggest of its kind we also kind of first of its kind but it's a very relevant and large size But if you really want to make a difference and basically open up this flexibility pool to retail customers at some point, right?

20:06I mean, the first point is you aggregate everyone who has an asset to contribute and you help them to optimize, right? This will be the first layer where we are right now. But if we are 20 gigawatt, which is about a million customers that we would need on subscription, it's basically a 10x that we need on the customer side, then you can start defining the price in the marketplace. Why? Also very simple. Whoever has an end-to-end optimization from power generation to the last mile of consumption so that I can basically back my production with consumption from a heat pump or battery so I can basically have an end -to-end optimization, they will by definition have the lowest cost.

20:52And if we get to 20 gigawatt, we could even offer electricity to customers who have no assets that are connected, who simply need electricity. So this is how we come up with the 20 gigawatt.

21:04Philipp Schröder:Amazing. Okay, so there's a path to make it happen. Can we talk about IPO? You've been a pre-IPO company for, I guess, a year or two. You've kind of been labeled that. You raised a big pre-IPO round. Can you talk a bit about the timelines for that? Are you still planning for 2026 and 2027? I would say that we are now in a position where we are self-sustaining. So we create sufficient cash out of our installation business that we can actually keep investing into a heartbeat AI, which is critical for us. It also proves the point that we can scale and make money on the hardware side. And that we only have 25 % of our business is still solar.

21:4975 % of it is pure home electrification. So this allows us to be a bit more agnostic about when is the best timing for an IPO. And yes, we have been very bullish to IPO sooner. But as you know, especially with Trump getting into office, but also the rollback on ESG and impact investing and all of the geopolitics, it has become extremely risky. You need to be very certain that you have a clear view of when and how to actually IPO. And so for the time being, we are remaining private, but with the option to go IPO whenever we see the opportunity. We do see a better opportunity now. We see that AI has basically educated investors how important electricity and energy is, right?

22:40It's directly correlating. And we see in the US electricity prices are going up. We see in the entire Western Hemisphere, Europe, United States, we are also active in Australia. we see very similar trends. The grid is a bottleneck. Last mile optimization is a problem. And electrification and AI is pushing that trend. So we see the window opening again, but I would be cautious because we also know that in current times, it's very difficult to plan, right? In my view for us, the best point in time will be to see whether the Trump administration will do a second term or not. Obviously, we believe if there is, let's say, a transition of power that is a regular one, this would be a great tailwind to do an IPO, right?

23:35Because we don't want to be somewhere stuck in geopolitics. We'd love to go to NASDAQ at some point. We are looking into expanding into California and Texas as we speak. So we really see that, for example, since the Chinese are not active in the United States, Heartbeat already has a compatibility in the United States of 85 % because we are compatible with the main players in the solar segment. So there's a huge potential for us in the US. So the perfect scenario is that we are entering the US and then at some point see that, you know, there is a trajectory that is not totally, let's say, anti clean energy, right?

24:24So I don't want to be too harsh on anyone on the political side. But obviously, if there is some, if there is some planning security, that would really help.

24:34Philipp Schröder:Have you had to think about the way that you present the company? Because as you mentioned, you know, clean tech was, I guess, much more hot four or five years ago, 2020, 2021. Now it's a lot more about energy resilience and AI and sovereignty. And a lot of what you're building, a lot of what you're doing is helping to solve a lot of those critical issues that we have here in Europe around energy prices and sovereignty and, you know, owning our full stack of energy, I guess. have you had to think about how you position the company either externally or investors to move away from clean tech towards energy like independence or sovereignty yeah have you had to think about that obviously obviously totally right i mean but i think we did as a team didn't have to think about it too hard um i think it's investors are thinking about it a lot so investors are thinking about like like what's the hot topic and how like our business is if you look at our business it is it is physical real world ai application um it is uh it is sustainable it is clean it is infrastructure so um in my view um it's always been all of that um uh however since investors are very about fashion um you always have an emphasis right and the emphasis yes four years ago has been a lot on clean tech or impact i must say i've never been a big fan on on the esg reporting side and the impact field in itself i think any solution needs to you know generate profits and every solution needs to be commercially successful people need to love the product and however yes we didn't have to think about it but obviously investors are thinking about this a lot and we have seen that there have has been some some let's say um almost anti-movement yeah so um we maybe sometimes we have to justify ourselves that we are also clean yeah that's the feeling i have but i would say um i see more positives than negatives because when i returned from from from san francisco two weeks ago i must say i was amazed how present the energy topic is especially with investors who placed large bets on on on ai so i think ai is helping us in general to reposition energy as the top priority for ai but also for the economy and for affordability so affordability economy and ai all of it is energy and that's much more helpful than any ideological discussion yeah i mean it's great tailwinds right i mean everybody's talking about it and when you built something that solves it yeah it's a great place to be you mentioned nasdaq what would it take for you to ipo the business in europe i think this is also referring you know back to the question you had prior to that that's the the largest issue i would say it's very difficult for a founding team to make a decision and say go go to Nasdaq, which basically means you become an American company.

27:38And we're hoping that the European marketplace has become more interesting. So we're also looking at Stockholm. We're looking at Frankfurt. We're looking at Paris. Three years ago, it would have been very clear to us that we have to go to Nasdaq. Because it's just the way, especially if you enter California and Texas at some point, it's where you should be. And then at some point, we also repositioned in internal discussions and had lots of discussions about let's stay truly European because in the end, our customers, they trust the brand. So they want to have data protection. They want to make sure that neither the Chinese nor the Americans can actually control their assets.

28:18Right. So it's also a question of brand protection and also independent sovereignty and resilience for the European customers. However, if we enter the US market, it will be also an issue for the US customers. So the perspectives have changed. We still prefer a Nasdaq solution. But I must admit, it's never been harder for us to somehow have a reliable forecast of what should be the right decision. We do not really favor the German index. the Swedish stock market is a different story I mean the Swedish do have much more momentum but anyways right now we are in a good position and we want to show much more traction and we want to show a US market entry potentially prior IPO anyway so we are not in a hurry and I'm glad that we don't have to be

29:15Philipp Schröder:and you have very successfully expanded internationally in an industry that hasn't seen a lot of successful international expansion how have you thought about both which markets to enter into and expand and then making it a success it's you know if you if you ask your whatever your preferred ai is if you ask it and ask like what are the markets with the highest electricity volatility we are in those so whenever you see it's always like markets are getting more mature for our business model if you have more electrification. So if we talk about the electrostate, that's the perfect business background for us.

29:57So any country that is looking to electrify a lot and at the same time has a lot of renewables will create the patterns that we can solve and that we can optimize. So for example, if you look to Holland, And you see already the duck curve. You see this in California as well. The duck curve is basically showing that you have a lot of solar during the day. Prices are going down. And then the prices are coming back up in the evening because there's no solar anymore. So we actually, our markets are chosen by the flexibility potential for heartbeat AI and the demand for electrification. And if you look for, for example, Australia, they do a lot on battery right now.

30:36and they do a lot to decarbonize out of fossil heating. We see the same in California going on. We see the same in Texas going on. And also generally, you see a general trend on home electrification, heating electrification, more air conditioning in Europe especially. And on top of that, obviously also electrification and mobility. And these are the drivers we have. And I think if you want to understand who we target next, you just need to look for the spread values in energy trading and some of the markets we're looking at right now uk is definitely a market we're going to touch um yeah and that's how we look at them and and that's also why we you know it doesn't make sense for us to to go into a market where we cannot add value um and we add value whenever the feed-in tariffs are over so we love heartbeat is the platform provider that makes it possible to utilize renewables and home electrification at its best price point without subsidies.

31:40So, for example, in Holland, they will stop net metering. I don't know whether you're aware of how that works, but you just take electricity from your solar system and you're allowed to put it into the grid, and later you take it out for free, which is basically a free storage. If the grid now is congested too much, you can't continue to do that. And the Dutch government is now stopping net metering, which will mean that all solar generators at the same time have no regime anymore to make money. And this is great for heartbeat AI because they will need in 2027, all of these millions of consumers will need a energy service platform that can actually take care of marketing their power in a free market.

32:26And it's the same in Germany. So we are entering markets when we see the duck curve, when we see spread values go up, when we see there's a lot of AI and electricity consumption starting. And we are maturing in our business model whenever the subsidies are stopping. That's what we love. Most of many peers in Impact are whining when subsidies are stopping. We actually share it because it makes it – you do not have a – you have nowhere to hide, right? I mean, all Germans, by the way, will have an end of feed-in tariff for solar systems as well in 27. So all of those millions of solar systems that are already existing will need heartbeat AI or something like heartbeat AI.