Project bundling for B2C contracting

Panel: 5. Business models and financing: established practice and innovative approaches

Author:
Maximilian Zoller, Thermondo GmbH, Germany

Abstract

It is well known that here is a lack of energy efficiency investments in a B2C (= private home owner) context. One factor causing this is the scarcity of customer friendly financing options.This scarcity is mainly caused by the following factors:

– High heterogeneity of investments

– Small tickets sizes and hence low attrativeness for banks

– High transactions costs due to high complexity

Project bundling is a potential solution to this problem. Project bundling refers to the bundling of small, homogenoous energy efficiency projects. These small projects are then collectively financed by one larger loan. Project bundling partially adresses the problem of heterogeneity and complexity in B2C energy efficiency transactions and makes it easier for a bank to process these loans since they do not have to deal with all the individual underlying projects but rather with one larger loan. However, transaction costs for the customer and high financing costs remain unsolved by regular project bundling. In order to tackle these issues, we at Thermondo, Germany’s largest installer of heating systems, have developed an innovative project bundling solution, that combines project bundling with public promotion programmes for the customer‘s benefit.

Three things are especially noteworthy about this solution. It is a true one-stop-shop solution and is hence more comfortable for the customer. Since we are both the heating installer and financing provider, customers have significantly lower transaction costs with us. Instead of filing paper work with several parties, our solutions is offered in our regular sales process and can be contracted simply by handing in the signed offer. All necessary paperwork is then handled by use.

It incorporates public promotion programmes and is hence cheaper. In this solution, KfW152 is an attractive promotional loan for heating system renewals offered by the German KfW. Individual KfW152 loans are often not economically viable for banks due to high process costs. Thermondo bundles multiple projects on a company level and provides all services necessary to receive the KfW152 loan (incl. energy consultant, solvency and technical and legal feasibility check). As a result the private customers make use of the promotional loan via Thermondo and have a lower monthly rate.

This solution is based on Contracting („heat lease“). Heating system Contracting means that all tasks related to the installation and maintenance of a new heating system are performed by the contractor: The Contractor installs and operates the heating system on the customer’s premises, is the owner of the heating system and bears the economic risk of operating it. In return the Customer pays a monthly rate for the operation of the heating system by the contractor. Since the economic risk is borne by the contractor, this is another reassuring factor and - on top of the one-stop-shop solution . adds to the perceived ease of use for the customer.

In conclusion, Thermondo has developed a one-stop-shop financing solution with cheap monthly financing rates, made possible thanks to public promotion programmes, that enables people to renew their heating system which might otherwise not have been able to do it and is likely to convince people who would not have contemplated doing so in the first place.