How a Swedish Heat Pump Startup Plans to Wean Europe Off Gas

(Bloomberg) -- Not many product launches start with a declaration of war. But for Aira, a heat pump manufacturer and installer created last year by Swedish private equity firm Vargas, the gloves are off. “The boiler is the enemy,” Daniel Särefjord, chief executive officer of Aira UK, proclaimed as he debuted the company’s first proprietary heat pump in London last week. “That’s the only enemy we have.”

That enemy is currently everywhere. Buildings produce about a third of carbon emissions in Europe, where the boiler is dominant in many countries. In the UK, roughly 80% of households still use gas for heating. The push to decarbonize home heating, meanwhile, has become increasingly contentious. In February, the heat pump industry recorded its first drop in European sales in a decade, a decline it attributed to negative narratives about the technology, delays to European green policies and concerns about inflation.

Aira is attempting to address those hurdles head on. Särefjord says the company’s heat pumps can generate four units of heat for every unit of power they use, making them a no-brainer for households focused on energy efficiency. To alleviate upfront costs, Aira offers monthly payment plans. And to fight negative perceptions about reliability, it plans to “guarantee comfort” for 15 years — if a homeowner is unsatisfied with performance during that time frame, the company will make adjustments free of charge. 

“It almost does not matter what politicians do. It’s very hard to fight something that’s four times better, requires a hell of a lot less maintenance [and] can’t poison people to death,” Särefjord told . “We have a much stronger player in our team than in the gas boiler team.”

Some 43% of Swedish households already have heat pumps, which is part of why Aira is targeting markets where heat pumps as a home-heating fix are still rare. The company, which raised €145 million ($158 million) from investors in January, has launched heat pump installation services in Germany, Italy and the UK, and now plans to offer its own heat pump in those countries. Aira’s heat pump, which is made in Poland, will compete in the region with European companies that include Vaillant, Nibe and Viessmann. 

Aira’s business model differs from the predominant setup in Europe, where most heat pump installers are small “one-man band” outfits, says Jan Rosenow, director of European programs at the Regulatory Assistance Project, an energy think tank. The company’s goal is to design, manufacture, install and service heat pumps across the continent, serving 5 million European customers over the next decade. By contrast, Europe’s current largest heat pump installer — Germany’s Thermondo — aimed to sell around 10,000 units in 2023, according to the European Heat Pump Association.

“It almost requires someone to reshape the category a bit like Tesla with electric cars,” Särefjord says. “It requires someone to have a much bigger ambition.” Aira promises up to 40% in savings on the annual cost of heating and a 75% reduction in CO2 emissions. 

One of the major barriers to heat pump adoption is cost: When a boiler breaks down, the upfront expense of switching to a heat pump is usually much greater than sticking with a fossil-fuel alternative. In the UK, Särefjord says government subsidies mean its heat pump costs start at around £3,000 to £7,000 ($3,800 to $9,000), including the 15-year guarantee, making it not much more expensive than a new gas boiler. 

For those who choose a year-long monthly payment plan, the cost will vary based on individual circumstances, but Aira does not charge interest. In Germany and Italy, the company allows households to pay off their heat pump over 10 to 15 years, but those plans include interest. A similar 10-year model will be launched in the UK in the coming months, the company said. Aira’s group CEO, Martin Lewerth, says about 75% of the company’s Italian heat pump installations have been financed with monthly payment plans. 

Aira is not immune to other headwinds facing the heat pump industry. The sector has been hamstrung by the limited availability of skilled installers, and a number of heat pump adoptees say botched installations left them with higher energy bills. “[If Aira wants] to scale up quickly, they’ve got to train a lot of installers and then make sure they are not just putting in these systems quickly and making mistakes,” Rosenow says.

Aira plans to establish heat pump academies to train up both heat pump installers and designers; the company says its own heat pumps will also in some cases be fixable remotely. 

The other big headwind is gas prices, which across Europe remain significantly lower than electricity prices. In the UK, gas is just over four times cheaper than electricity. That means Aira’s main promise — that consumers can see big savings by ditching their gas boiler — is only persuasive if their units consistently reach four-fold efficiency, which is far from guaranteed. Aira argues that the inclusion of maintenance in its prices makes its heat pumps cost-competitive with gas even when they are not at that level of efficiency. 

Sweden has seen its own heat pump market grow from a small portion of home heating in the 1980s to the dominant technology now. Aira’s sales pitch makes much of its Scandinavian heritage, from the “Scandi style” of its sleek black units to the “Scandinavian way” of low-carbon home heating that it hopes to roll out across Europe. “Twenty years ago when Sweden did it, we didn’t really care about global warming. It really was only a financial reason,” Särefjord says. “Now I think we have two movements that really drive in the same direction.”

The company isn’t stopping at heat pumps, either. Long term, Lewerth says Aira is planning to add solar and batteries to its offering and the company’s ultimate ambition is to manufacture and install a full home-energy setup. “Everything we add now on top of our heat pump, it’s under the same umbrella, the same ecosystem,” he says. “That is what we are building.”

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