Heat pump water heaters use a fraction of the energy of conventional electric resistance heaters — which use more electricity in a year than an EV — but they're only 2 percent of the market, mainly because they tend to cost more, be slow and loud, and require a plumber and an electrician. Reservoir is a Boston company trying to fix all that, with a smarter, quieter machine and its own plumbers. I talk with CEO Luke Winston-Almanzar about how it works, what it costs, and its potential role in demand response programs.
There’s nothing less sexy than a water heater. Even among home appliances — not the sexiest category to begin with — it is unprepossessing and plain, ubiquitous yet invisible. At least until it breaks down. That tends to be the one time a home or building owner interacts with the hot water heater at all: when they replace it. That happens about 10 million times a year in the US.
Of the water heaters sold each year, about 45 percent burn natural gas, and that number is declining; about 50 percent are electric, and that number is rising. Of those electric water heaters, about 4 percent use heat pumps rather than electric resistance.
Perhaps because water heating is so seldom commented on, it comes as a surprise to many people to learn that it accounts for 20% of home energy use, second only to space heating. A conventional electric-resistance water heater consumes more electricity annually than an EV.
Heat-pump water heaters use much less electricity, but they have tended to be not only more expensive but more complicated, more difficult to install and maintain, and honestly pretty big and ugly.
A new company called Reservoir is trying to drag the heat-pump water-heater space into the modern world. It designs and builds its own machines and uses its own plumbers to install them. Its machines include sensors and machine learning that adapt to a family’s water usage, monitor pipes for leaks or pressure failures, and can theoretically participate in utility demand-response programs. And the company claims its water heater uses 80 percent less energy than a conventional electric heater. It’s certainly less ugly.
Today I’m going to talk to CEO Luke Winston-Almanzar about why this appliance is so important, the possibilities a modern water heater opens up, what it costs relative to conventional heaters, and where water heating should fall on the electrification priority list.
Chapters
00:00 – Introduction
03:06 – Why water heaters
06:34 – How gas, resistance, and heat pump water heaters work
09:33 – Size and slow recovery: predictive heating and party mode
15:31 – Installation and vertical integration
22:19 – Cutting electric resistance backup
20:31 – What Reservoir builds and what it sources
23:41 – Tankless gas, virtual capacity, and the booster heater
27:11 – Recirculation, freeze protection, leak detection, and Legionella
32:03 – What it costs and what it saves
36:01 – Placement: small rooms, basements, and cold climates
42:37 – Noise and durability
48:19 – Demand response and virtual power plants
53:22 – A. O. Smith’s CO2 split system and Reservoir’s moat
55:54 – Policy headwinds after the IRA
59:29 – What’s next for Reservoir
Resources
People & Organizations
Volts (Apple Podcasts - Spotify - YouTube)
Luke Winston-Almanzar (LinkedIn)
Company & Industry News
Reservoir raises $8M to make water heaters that people and the grid will actually want
We’ve Got Sexy Heat Pumps. Now It’s Time for Sexy Water Heaters.
A. O. Smith Announces Voltex X Outdoor Split Heat Pump Water Heater
Books & Articles Discussed
NEEA - Heat Pump Water Heaters in Small Spaces Lab Testing: The Amazing Shrinking Room
Department of Energy - DOE Finalizes Efficiency Standards for Water Heaters
Federal Register - Energy Conservation Standards for Consumer Water Heaters
Related Volts Episodes
Text Transcript
David Roberts: All right then. With no further ado, Luke Winston-Almanzar, welcome to Volts. Thank you so much for coming.
Luke Winston-Almanzar: Yeah, thank you so much for having me here, David. That’s a great intro and overview. Excited to dive in.
David Roberts: Yeah. So you’ve worked at some cool companies in the past. Your partners have worked on some cool stuff. Why water heaters? Why try to solve this problem?
Luke Winston-Almanzar: Yeah, like you said, it’s mostly overlooked. I guess, like, the way I like to put it is it’s the biggest energy guzzler that nobody talks about. As you point out, like I worked at a previous company called Formlabs, where we built 3D printers and talk about like exciting, amazing devices, smart devices. I basically learned how to build a big smart device company, but I’ve also been super passionate for so long about climate, energy. I’ve worked in construction. I’ve studied energy business and climate, and I wanted to make a big impact on homes, and I was looking down the list of what’s the way to make an impact on homes that you could start fast, make a really big impact.
Honestly, it blew my mind away when I realized how much energy I was using on water heating. I mean, you already pointed it out. You use more energy to heat your water than it takes to drive an electric car. I guess coming from a smart kinda device company, what also kind of blew my mind was you have these devices that are using so much energy, so like a fifth of home energy, and yet my air fryer is smarter than the typical water heater. And it’s the kind of thing that you can replace in a morning or an afternoon, and so you can actually make a really big impact on your energy in your home and actually your comfort.
You may not think about your water heater, but you definitely think about your hot water, you think about your shower and things like that. And so it was the chance to make a new device with some intelligence. Like my smart ring is smarter than the typical water heater, and yet these things use a God-awful amount of energy. And as you pointed out, like a lot of people don’t actually think about them until they fail.
But I think the other crazy thing about it, it’s not just how much energy they use, it’s how they tell you that they’re failing. The failure alert that you get from the water heater in your basement is that there’s water all over the floor, right? And in an age of smartphones and smart devices and all these kinds of things, there’s a better way to find out that your water heater failed. There’s also a better way of using the energy and things like that.
And so we saw an opportunity to come in, take a much more efficient kinda device, so we can help save people a bunch of money and help save the planet, help save energy and stuff like that. But water heating is also the intersection of energy, water, and health in a home, and it’s also a way of getting started in the home. Like, I can install a water heater a lot faster than I can install a whole home HVAC system or change a lot of the different components in the house. And so the way I put it is it’s the fastest path to home electrification, and we wanna do more than that, but it’s a super fast way to get started.
David Roberts: Did you set out thinking, “I’m gonna make a heat pump water heater,” or did you just look, analyze the situation, and determine that, you know, was the heat pump the result of it, or did you set out from the beginning with heat pumps in mind?
Luke Winston-Almanzar: Set out from the beginning with heat pumps in mind. I guess first I zoned in on, I saw water heating as this amazing foothold to get into the house, because as you mentioned, there’s 10 million replacements in a year, and the large, large, large, large 98 percent of them are not heat pump water heaters.
And so heat pump water heaters are dramatically more efficient. It’s nothing new to say that you can- It’s, like, much, much more efficient than electric resistance water heaters. It’s much more efficient than gas water heaters, and at the same time, it’s 2 percent of the market. And so there’s a big question as to like, why is it only 2 percent of the market? So you have the benefit of sure, we can get a lot more efficient, so why is nobody adopting them? Some people would say it’s because it’s a new technology, but it’s actually not a new technology.
David Roberts: Yeah. Heat pumps are not, I don’t think they’re new anymore. Before we get into the details of your water heater, which I do wanna do, I just wanna briefly walk through, because people don’t think about water heaters. I just wanna briefly walk through like what water heaters are doing. So like a natural gas, it’s a big tank of water that’s getting heated basically in all cases. In natural gas, is that just a flame directly on the tank, or is that heating a heating element that then winds around the tank? How do these things-
Luke Winston-Almanzar: Yeah, if, I mean, if you look at... It’s pretty basic technology, right? You have a fire heating the bottom of the tank, and it heats up the tank, right?
David Roberts: And then electric resistance, it’s like a radiator basically. It’s, like, heating a coil that wraps the tank more or less, right?
Luke Winston-Almanzar: No, that’s actually not correct. So actually, with an electric resistance, you have a heating element that’s, like, plugged straight into the tank. It’s a little bit more like a rod, and there’ll tend to be two of them. And so they’re stuck directly into the water. And I guess the way I kinda put it is, like, if you have natural gas or fossil fuels, you’re burning dinosaur guts just over a pot, right? And then if you have electric resistance, you’re using a toaster to heat your water, right? You literally are just pumping a bunch of electricity through a coil so it heats up, and then you transfer that to your water.
David Roberts: Right. So a heat pump water heater, we don’t have to go through the whole mechanics of a heat pump. I think I’ve just covered this before on Volts. But I think the easiest way to think about it is it’s a little bit like a reverse refrigerator. So, like, your refrigerator takes heat inside a box and dumps it outside the box into the room. This takes heat in the room and dumps it inside the tank, basically, more or less.
Luke Winston-Almanzar: Yeah, exactly. So you cycle a bunch of air through a heat exchanger, you pull the heat out of the air, and then you dump it in the water. In the summer, that’s great. The byproduct of it is you have some air conditioning and also some dehumidification.
David Roberts: Yeah.
Luke Winston-Almanzar: But that’s effectively what it does. You’re not creating heat, you’re just moving heat around.
David Roberts: Right. And this is why you get these miraculous COPs, these coefficient of performance. Again, if anybody’s listened to any of my previous pods on heat pumps, they know what this means. Basically, like, with any kind of natural gas or resistance heater, you’re somewhere under 100 percent. You put a unit of energy in and you get less than that in heating out. But with a heat pump, you put a unit of energy in, and you can get four or five units of heat out, because it’s not generating the heat, it’s just gathering it.
Luke Winston-Almanzar: Yeah.
David Roberts: And so the COP is what? Four on your devices? We don’t… we’ll get into that a little bit more later, but.
Luke Winston-Almanzar: So this is actually where there’s some nuance with heat pump water heaters in general. So there’s, like, UEF, which is the government reported, like, efficiencies. We have a 3.51. But just like cars where they have miles per gallon in the lab, what actually happens in the field is actually different, and I think that’s where we’ll wanna talk a lot about, like, the predictive intelligence we have in our system. But we can talk about that.
David Roberts: Yeah. It depends on the room, the heat in the room, the humidity, a lot of things. We’ll get into some of that later. So heat pump water heater. So but the ding I wanna sort of go through the sort of critiques of typical heat pump water heaters, aside from just being expensive, which we’ll get to later.
I think the standard critiques is that they’re really big, they’re really complicated to install, and they’re really slow to heat water, which means in practice, most of them today have electric resistance backup, and my understanding is that in most conventional heat pump hot water heaters today, that backup is doing, like, 30 percent of the work. So you’re getting, like, a third of a electric resistance water heater anyway, even if you buy one with a heat pump.
So let’s go through those and talk about how you have kind of addressed or solved those problems. Starting with the size, you have wrestled this thing down to not that much bigger than a conventional water heater. I think it’s a 50-gallon tank. Talk about how you shrunk it down without losing performance.
Luke Winston-Almanzar: Yeah. I’ll kinda go down, like, a little bit of the thread you’re talking about, like some of the trade-offs with just a typical heat pump. And so I think the great thing about a heat pump is it’s insanely efficient, right? And so we wanted to take that, but if you take a typical heat pump water heater, like with a heat pump on a 50-gallon tank, that heat pump will take five to six hours to heat up that tank.
And so if you have a traditional, like, algorithm of heating the water on that, where it’s like you have a big draw pattern, then the typical water heater’s like, “Oh, geez, I gotta heat that back up again,” it then goes to the electric resistance elements, which are fast. But I guess the way we look at it is you can get anywhere walking on time as long as you leave on time. And so what Reservoir does, it spends the first month in your house, like, learning your behavior, right? So it learns that David’s an early riser and you shower at 6:00 in the morning.
David Roberts: It’s definitely not gonna learn that, Luke.
Luke Winston-Almanzar: Okay. So it learns that David is a midday shower. You shower at noon every day, and all of us are jealous of you. But then it starts heating the water at, call it 6:00 in the morning, since you shower at 12 noon. And so it has plenty of time to do that, and it can anticipate that. And then when you take your shower, it doesn’t freak out that it needs to be ready for the next one because it generally knows your behavior. And so in this way, we can optimize the efficiency of the heat pump because we can just use it more, because we know when you shower and things like that.
And so what we saw, like, a lot of people doing with typical generic heat pump water heaters was they, for like a family of four like mine, they were oversizing the heat pump water heater. So instead of getting a 50-gallon heat pump water heater, they’d get an 80-gallon heat pump water heater, and that’s so they can either use the heat pump more or so that they can be ready for Thanksgiving and things like that. And so on Thanksgiving, you have a big tank, which is nice when you have your family over. But the rest of the year, you have a tank that’s just way too big, and you have standby losses, and you have this tank of water just sitting there.
We decided to add a fully onboard computer that can learn your behavior as I mentioned, and so we can have a smaller tank. We can give you higher efficiency, but then you don’t run out of hot water. You don’t have to worry about that kinda thing. And then we built in what we call party mode into the system, so we can get 150 gallons out of a 50-gallon tank for Thanksgiving, for when you have family and friends over. So party mode is not the most efficient piece of the system, but we think it’s okay to be inefficient on a couple days of the year and be more efficient the rest of the year.
David Roberts: Right, and this is where you’re superheating the water and then combining it with basically just tap water to get the right temperature. So you have 50 gallons of superheated water, which translates to whatever, 150 gallons of typical hot water.
Luke Winston-Almanzar: Yeah. There’s a little bit more that goes on there, but yeah. We have a safety mechanism called a mixing valve in there that actually prevents the super hot water from getting to your faucet, but then you mix it with colder water and you effectively have more. We also can dynamically manage the backup elements so that we can top up more precisely than anybody else.
But there is one other aspect of the system that’s super important. If you wanna do this kind of thing, you’re effectively storing more heat in the tank. When you raise the temperature of the tank, in a typical water heater, you would actually end up accelerating corrosion. So you actually, like, would burn out the tank faster, and we’ll get to the analogies of batteries in a little bit.
David Roberts: Right. ’Cause extremely hot water is corrosive to all the elements in there.
Luke Winston-Almanzar: Yeah. So if you’re like 150-degree water is much more corrosive than 120-degree water. But we have what’s called an electric anode rod built into the system. It’s like technology from the maritime industry, oil and gas. And instead of having a sacrificial anode rod, our system can actually prevent corrosion in the system, which means we can do a lot more things with heat than most people out there.
David Roberts: But this party mode, that’s something that I, as the homeowner, would need to invoke on purpose. I would tell the thing somehow that a party is on the way, right?
Luke Winston-Almanzar: Yeah, you would tell people. So what it does on a normal basis is it learns your behavior, and it can be more extreme or less extreme. You can give it some feedback. “I wanna prioritize not running out of hot water,” or, “I wanna prioritize efficiency.” But it doesn’t know when your in-laws are gonna show up, so you do have to tell it, yeah. But you can schedule that so it turns off when they leave.
David Roberts: Hmm. Interesting. Okay. So wait, coming back to the size, so just like try to give people a sense of the size of this thing. Is it about the size of a normal water heater?
Luke Winston-Almanzar: It’s taller, but it takes up about the same footprint. So it’s about five and a half feet tall. You’ll notice, like, the cylinder of it is about the same footprint as a 50-gallon generic water heater. And then we have what we call the hydronic system on the side of it. So there’s this really elegantly designed, like, rectangular portion where you can see the touch screen.
But that ends up taking up about the same amount of space as a typical water heater once you include the pipes that you attach to it. We wanted to make it as easy as possible to get through doors. We wanted to make it as easy as possible just to fit in a space without taking up a bunch of your space.
David Roberts: Okay. Now let’s talk about the install here ’cause this, of course, one of the classic problems with trying to get one of these as a homeowner is that you end up calling an electrician and a plumber, and then you have to take bids from both, find a good one on both ends, and then coordinate them together. It becomes a kind of project management. It becomes a project management thing just to get one of these installed, which of course, like, especially if your water heater just broke, you obviously do not want to do.
So you guys build and install these yourselves. How does that work? What’s the install process look like from a homeowner’s perspective?
Luke Winston-Almanzar: We design, manufacture, and install these ourselves because for exactly what you’re saying, we think it’s important that it’s easy to get these, that the customer experience is great, but then that it’s affordable. And we could talk about that in a minute. But we have a fully licensed plumbing company in Massachusetts, so we’re not that big of a company yet. We’re only installing in the Northeast. We’ll be expanding pretty rapidly in the coming months and years.
But right now, a homeowner can come to us. We have what’s called the virtual assessment. We don’t even have to visit your house to evaluate your house. You can submit a couple questions as well as a couple photos. This is where we do use a little bit of AI to make sure your photos are correct of your panel and whatnot. And the first time we visit your house is when we actually install it, because you don’t want a plumbing van showing up to your house, like, three or four times just to install a water heater, right? So what this allows us to do is save you the peace of mind, it allows us to be more efficient.
And then we show up, we install Reservoir, and it’s actually easier to install than the typical heat pump water heater because we’ve integrated a variety of different components. We’ve integrated the condensate pump, so you don’t need a separate device. You don’t need a separate power supply. But then we’ve also integrated a couple other things, like, so we actually have built-in recirculation into the system so that we can actually have instant hot water, but then we can also use that for other amazing features like protecting your plumbing, which we can talk about.
But since it’s all an integrated device, we just have a couple connections to your house. We have the hot water, the cold water, the power, and condensate, right? It’s actually a pretty seamless install. We can install in a morning. We can install in an afternoon. And if you think about it, in that morning or afternoon, we dramatically impacted, like, a fifth of your energy, right?
David Roberts: Mm-hmm. And does this get plugged into a 240 volt outlet, or can you get by on a 120 volt? I know some other companies are putting out 120 volt water heaters now, which sort of eliminates the need for an electrician.
Luke Winston-Almanzar: Yeah. So we typically install on a 240 volt. We can install on a 120 volt. We actually see that as more helping you with the project management. If the electrician can’t show up the same day, if he needs to show up a week later, start at 120 volts and then convert to 240 volts. We’ve also installed with batteries before. But for the typical family, especially if you have kids and whatnot, like, I’m a family of four, I don’t think a 120 volt’s the best experience because you just need to be able to get some more capacity out of the system sometimes. And so we think for the best experience, you should have 240 volts.
David Roberts: You don’t have electricians on staff that can do that piece of it. That piece of it, the homeowner will have to do.
Luke Winston-Almanzar: No, actually that’s not true. So we don’t have them full-time employed, but we do coordinate that whole thing. This is once again, we don’t want homeowners to be the project managers, so we actually have trusted electricians that we coordinate. You don’t talk to them directly, so they’re effectively on our team. And so you talk to us, you transact with us, we get you fully installed, we get you a Reservoir, we manage the electrical components of it, and we also get rid of your old system.
David Roberts: And this still sounds a little bit like something you have to plan. I wonder of the sort of 100 units, I think, or something like that you’ve installed at this point, how many of them were emergencies? You know, how many of them were a response to, “Hey, my hot water heater is broken. Get over here as fast as possible”?
Luke Winston-Almanzar: Roughly like a third of them-
David Roberts: Hmm...
Luke Winston-Almanzar: at this point. We’re a new company, so we have a lot of early adopters who get excited about this kinda thing, so they’re proactively planning. There’s a lot of people on the home electrification journey, and water heating has actually been one of the last things that they’re able to upgrade. So we have quite a few that are proactive.
But then this gets to one of the biggest reasons we actually are vertically integrated, is because we have stock, we can respond within 24 hours. And so you have a lot of people... Let’s say you care about the environment, David, and you’re thinking about a heat pump water heater, but you’re procrastinating, and then your water heater fails. You need a new one within 24 hours or 48 hours.
David Roberts: Right.
Luke Winston-Almanzar: One of the things we’ve found is most plumbers don’t stock heat pump water heaters. Sometimes it’s even hard to get ’em in Home Depot, and so are you gonna wait two weeks for them to acquire it, right? So one of the big reasons we’ve been able to be so successful is because we can respond really quickly. This is why, I mean, love to tell you more about, like, the technology and everything, but the product really is the hardware and the service component. This is a huge piece to helping homeowners electrify.
David Roberts: Yeah. Yeah. I mean, one of the things that sort of came out as I was looking into this, researching and reading about it, is that the vertical integration model, the service model, is one of the biggest differentiators here, I think. It’s a big part of the business model. We’ll get to the technology in a minute, but I kinda wanted to probe a little bit on this vertical integration.
When you say you design and build and manufacture it, how much of it are we talking about here? Because, like, manufacturing, as I understand it, what is, like, a giant glass-lined tank, is not a trivial thing. You have a lot of very big companies that do this. Tell me, like, how much are you buying off the shelf versus how much you’re genuinely designing and manufacturing on your own?
Luke Winston-Almanzar: Oh, no. That’s a great clarification. So when I say we manufacture, I mean, we do have a contract manufacturer. We work with a partner that does this. Like almost any hardware company, we have a supply chain, we have sub-suppliers, and we do other things like that. We don’t have our own team, like, manufacturing tanks.
What we do do is we source components from a variety of different manufacturers and tried-and-true kinda components by manufacturers that manufacture in the millions, if not hundreds of millions. And so that’s everywhere from the tank, as you mentioned, all the way to, like, the recirculation pumps, which are manufactured in the hundreds of millions, to the mixing valves and things like that. Where a lot of the innovation that we actually have is on the integration of these kinds of things, like the integration of the computer, the integration of the ultrasonic flow meter, the recirculation pump, the tank, the heat pump, and then making them all work in this amazingly efficient way because we have a computer.
So when I say we manufacture it, we do have an extremely experienced partner specifically with these kinds of things, and that’s how we’re able to have an amazing product and also scale faster than you’d actually imagine.
David Roberts: Right. Okay, and then we talked about this already, but the slow piece of it. You know, typical heat pump hot water heater will, as I said, like 30 percent of the heat ends up coming from electric resistance. You are presumably reduced the amount that the electric… You do have electric resistance backup, but you reduce the amount it’s used to what percent on average? Obviously, it’s gonna depend, but by doing this preheating, this learning and this preheating.
Luke Winston-Almanzar: Yeah. We’re still doing different studies like on this kind of thing. There’s studies out there that show with predictive intelligence you can significantly improve it, but we’ve seen improvements on the scale of 30-plus percent depending on the homeowner, right? And so you can dramatically improve it. I guess one piece I wanna clarify is like we are not like purists in the sense of like thou shalt never touch an electric resistance element. It has its purpose.
David Roberts: Yeah.
Luke Winston-Almanzar: And so most homeowners aren’t… Their number one priority is not necessarily efficiency. They wanna save money. They do wanna save the environment and everything, but they wanna make sure they’re not running out of hot water. And so we can optimize use of the heat pump, like I said, on a scale of like 30-plus percent or more. We’ll publish more of this. We’re still a young company, but we’re able to get a lot more use out of the heat pump than other kinds of systems. But we’re also able to do some other stuff, which I won’t get into right now, but happy to dive down this rabbit hole for a bit.
David Roberts: Well, talk a little bit about the continuous loop, ’cause one of the questions I got … I threw this out on Bluesky and one of the questions is just, you know, a lot of people are into these days the on-demand water heaters just because you can get as much hot water as you want, whenever you want, as long as you want. So you’ve got this sort of continuous loop thing built in that mimics that functionality, as I understand it. What does that mean?
Luke Winston-Almanzar: Yeah. I don’t know what you mean by the continuous loop side of things, but I’m glad you brought up tankless water heaters because that’s actually what I had before this. I’m actually in the middle of five boys, and I had a lot of cold showers as a kid. And so I hate running out of hot water. But like switching from the tankless gas to a heat pump water heater, that was like my wife’s number one thing. She’s like, “Are we gonna run out of hot water?”
David Roberts: Right.
Luke Winston-Almanzar: And so what we tried to do is create Reservoir that’s a heat pump water heater that can be a tankless gas killer. So one tankless gas system can continuously produce hot water, but it doesn’t store hot water.
David Roberts: Right.
Luke Winston-Almanzar: And so if you actually wanna do recirculation, which can actually warm your pipes before you turn your shower on to get like instant hot water, you typically would need a tank so that you can actually enable that. You have to augment it in different ways. A tankless gas water heater is also more expensive to install than it takes to install a Reservoir.
And then the other piece is more than half the country doesn’t have the option to install a tankless gas water heater. And if you start talking about like tankless electric water heaters, the power draw on those is just like insanely high. You end up taking up more than a panel of space for some of these kinds of things, which just makes them absolutely impractical.
And so what we want to do, we call it virtual capacity. Maybe that’s what you’re referring to with the continuous loop side of things, and that’s how we get up to 150 gallons. Because like I keep saying, we wanted the efficient option where you don’t run out of hot water, where you don’t have to worry about this side of things so you can save money. But then our tagline is save power, save your showers, right? Because we can predict your behavior. Like you don’t notice the efficiency side of things as long as you get plenty of hot water, right? And so we’re able to manage that on the back end.
And then we also have a backup, what we call a booster heater built into the system. So as opposed to the two electric resistance elements I was talking about, like inside the tank, we have an inline booster heater, so we can actually heat the marginal amount of hot water. So in the God forbid event at your noon shower, David, you are about to run out of hot water, we can turn on that just marginal electric resistance element, be a little less efficient, but make sure you get the rest of your shower, and then turn it off, right? And that way we can get rid of some of the range anxiety you might have with a more efficient device.
David Roberts: Do you guarantee to a homeowner, family of four, whatever, install one of these and you will never run out of hot water. You will never get that cold shower thing.
Luke Winston-Almanzar: It’s gonna depend. You would not believe, like, some of the shower fixtures some different people have. Like, you can put any system to the test, but that’s our guiding light, right, is like never run out of hot water. When we do, we get feedback from the customer, and we’ve adjusted the algorithm. Most of our customers do not, but I’m not gonna guarantee that.
You can’t even guarantee that with a tankless gas system. Like, I can put a tankless gas system to the test with the right hot tub, right? And so what I can say is, like, for the most part, you’re not gonna notice. Like you said, people don’t think about their water heater. What I can say is we will save you a bunch of money, and you will almost never notice that whether you have hot water or not, and you also will have a plumbing security system. So like one of the things we haven’t talked about as much is, like, how we can help protect your pipes, and I’d love to go into that kind of thing as well.
David Roberts: What’s something else the computer is doing? Like, what else is the computer doing? The computer’s learning your… creating a predictive algorithm, learning your behavior. What else is the computer in there doing?
Luke Winston-Almanzar: Yeah. So we didn’t just put a computer on a water heater so that we can have a computer on a water heater. So we can do more, right? So one is we can use the heat pump better. That’s what we’ve been talking about. The other piece is we’ve integrated a hydronic system, which includes things like the recirculation.
So this is one of the coolest whiz-bang kind of features we have on it. So we can actually heat your pipes before you even turn on the faucet in your shower, so that when you turn it on, it’s just hot. There’s a couple benefits to that. So like in my home in Massachusetts, it would take like two minutes normally to heat up before it’s actually hot and I wanna step in.
David Roberts: Yeah. This is the very traditional, I mean, you don’t even really think about it, but when you take a hot shower, there’s like 30 seconds, a minute of cold water before the hot water arrives. That’s what you’re talking about, right?
Luke Winston-Almanzar: Yeah, exactly. You gotta pump out the cold water out of the pipes before it arrives. Some places it’s five seconds, some places it’s two minutes. I’ve seen places it’s like almost five minutes. And one, you’re waiting, but then you’re pouring a God-awful amount of just cold water down the drain, and the average family wastes like 4,000 gallons of water each year just holding their hand out, waiting for the shower to heat up. And so this is cool. Like in… You can save water. The problem with a traditional recirculation system is you’re also wasting a bunch of energy just keeping your pipes warm unless you do it intelligently.
David Roberts: Right. I think maybe this is what I was referring to with continuous loop thing, just the recirculation thing, keeping the water in the pipes hot thing.
Luke Winston-Almanzar: Oh, okay. Yeah. Yeah. Well, so, you know, there’s one way we could do it is we can just keep your pipes hot all day long, and it’s kinda like having a taxi driving around your house all day long for the moment you need it. Or because I already know you shower at noon every day, we heat up your shower at noon. Or I can let you use our app on your phone, and you can warm it up. You can even tell Siri to warm it up. And in that way, we can save water, save your time, save your shivering time, and also save energy at the same time.
A typical heat pump water heater has no idea what’s going on when a recirculation pump is, like, drawing water, and then it’s doing that reactive algorithm. What this actually enables, that’s a whiz bang, that’s a comfort feature, stuff like that, but it actually enables some of the plumbing security system feature kinda talking about.
Because we have a recirculation pump built into it, we can sample your cold water. We can predict if your pipes are gonna freeze. And in Boston, that matters a lot more than I imagine in Seattle. And then we could say like, “Hey, David, your pipes are gonna freeze. Do you want us to pump warm water into your pipes?” And so we actually can help prevent your pipes from freezing.
David Roberts: And you can do that remotely presumably, like I could do it with an app when I’m not in the home.
Luke Winston-Almanzar: Oh, yeah, go to Jamaica, and you can do it from there if it’s January. We also have a pressure sensor in the system, so sure, like a lotta water heaters can detect a leak in the water heater itself, but we can actually see into your plumbing. So we can actually detect if you have a leak or an open faucet in your broader plumbing system because we have a pressure sensor, but we also have what’s called an ultrasonic flow meter, and so we’re using sound to measure the flow of your water. It’s so sensitive it can actually detect the thermal expansion of water. So like when you heat up water, it expands.
David Roberts: Right.
Luke Winston-Almanzar: Our system is so sensitive it can detect that, and so what that means is we can detect so much more beyond just the water heater itself in your plumbing system.
David Roberts: I’m curious how precise that is. Like, you can tell me somewhere in your plumbing there’s a leak, or you can say where the leak is.
Luke Winston-Almanzar: We can say somewhere in your plumbing. We can also characterize the leak, so we can characterize, like, the rate of it with a flow meter. We can ultimately, like, make kind of like a digital twin of your system where we can sense if it’s a, you might be washing dishes, or you might be taking a shower or taking a bath. We can see pretty minute changes in it. I won’t be able to tell you it’s in bathroom number one, at least not yet. We will be adding more technology, right?
David Roberts: I was gonna say, that would sound like magic if you could do that. So you’ve got a computer that’s can prevent freezing pipes, it can detect leaks, it can basically monitor the health of your plumbing alongside all this stuff.
Luke Winston-Almanzar: Yeah. And it can tell you if something’s wrong rather than waiting until the water’s all over your floor or in your walls, right? The other side of things is something people don’t talk about all that much is, like, Legionella bacteria. And so water at certain temperatures, call it, like, 90 to 100 degrees, is great for breeding Legionella bacteria. If you’ve been on vacation or if a certain part of your tank or your pipes may have been sitting at a temperature for a certain amount of time, you can get bacteria built up.
It’s pretty simple to kill it. You just heat up the water to a higher temperature, 140, 150 degrees Fahrenheit. But most people aren’t gonna go down to their basement and turn it up and manage all these kinds of things. Reservoir can predict when your water’s been in a kind of an optimal area for breeding that kind of bacteria and then just kill it, right? This is especially important for little kids as well as elderly people, so you don’t wanna be exposed to that kind of stuff.
David Roberts: Okay. How much does this thing cost? I’ve seen inconsistent numbers in a couple of different sources. I’m curious to just pin it down. Off the shelf, how much does this thing cost?
Luke Winston-Almanzar: Yeah. So we have two different packages. Before I say, like, exact price, this is such an important question because a lot of people just think about the hardware cost, but the bulk of the cost of acquiring a new water heater and a heat pump water heater is on the install. And so that’s one of the biggest reasons we have the vertical integration is because once you actually get a quote from a plumber, your eyes will pop, particularly in metros like Boston.
And so our system is between $5,000 and $6,000 before incentives. And in a place like Massachusetts, you have incentives of $1,050. And so you can get started with Reservoir for $3,950 and just go up a little bit more from there.
David Roberts: That’s just the hardware.
Luke Winston-Almanzar: That’s a great clarification. That’s including installation, that’s including removal of your old system, and everything like that. And so if you compare that to, like in the Boston metro, a typical electric resistance dumb tank, I’ve seen install costs everywhere from 2,500 bucks to more than $6,000. For a tankless gas system, I’ve seen it cost $5,000 to $10,000. And so with Reservoir costing between just below $4,000 up to about $5,500 once you include the incentives, we’re very mainstream. I didn’t wanna build a company that’s just building green products for rich people. I want it to be available for a bunch of homes, right?
David Roberts: So your hardware costs a little more, but your install costs much less, and you’re netting out, you think, roughly comparable to a traditional water heater. Is that fair to say?
Luke Winston-Almanzar: Yeah, on the install cost. And then if you then start comparing to the fuel cost, like a, an electric resistance tank, we can save you 800 bucks to 1,000 bucks every year versus an electric resistance tank in a metro like Boston, even more in California and other places like that.
David Roberts: Right. I guess it depends on the cost of electricity, right? But you’re saving a lot of electricity. I’m curious, just on the fuel cost question, I guess the comparison to natural gas is gonna be very sensitive to your location, obviously. What about in Boston? Like, what’s the fuel cost comparison in Boston, your amount of electricity versus the natural gas it would take to run a natural gas heater?
Luke Winston-Almanzar: Yeah. There’s different types of natural gas heaters, right? So there’s the tanked gas heater, which is the least efficient one ’cause you’re just burning gas under the tank, and so you can have efficiencies as low as, like, 0.6, right? And then you can have a tankless gas system, which is a bit more efficient, so you can have efficiencies like 0.9 to 0.95.
So from an energy use perspective, we’re way more efficient. But natural gas is cheap, and ultimately, that’s what we wanna beat, and that’s where we think the predictive intelligence is what you need to actually beat it. And so versus, like, a gas tank, we’ll save you a couple hundred bucks a year. If you take the direct comparison of the upfront cost plus the-
David Roberts: That’s in Boston.
Luke Winston-Almanzar: That’s in Boston. Yeah. You’re gonna have to compare that in different metros. Most of the places-
David Roberts: The price of electricity will vary. The price of natural gas will vary. The price of plumbers, honestly, will vary. Like, all of these things vary depending on where you are.
Luke Winston-Almanzar: Absolutely. But then half the country, right, doesn’t even have access to natural gas, so this isn’t even a conversation. So, like, if you go to Florida, 90 percent of water heaters use electric resistance, and so it’s a different kind of equation.
David Roberts: Your table, your cost comparison table says you can save 800 a year versus a conventional electric resistance heater. It says you save 100 a year versus a typical heat pump water heater. Is that just the computer and the predictive efficiency?
Luke Winston-Almanzar: Yeah, that’s the intelligence. Yeah. We didn’t invent some crazy new type of heat pump. We’re just using it smarter.
David Roberts: Right, right, right. Like, the heat pump itself is a typical heat pump.
Luke Winston-Almanzar: Yeah, it’s a typical heat pump. I mean, we’re very much of the philosophy of, like, let’s not reinvent something awesome. Let’s deploy, deploy, deploy. We’re getting more out of it because of the predictive algorithm.
David Roberts: Okay. I wanna talk a little bit about where to put these things and how they affect the rooms they’re in because I find this fascinating. So, like, one of the things your sort of marketing materials say, “Hey, as we shrank this thing down, we shoved everything, we shoved a bunch of stuff into a single package.” Like, it’s funny, the picture of yours installed versus a picture of a typical heat pump water heater install. The typical heat pump water heater install is comical ’cause they’re just, like, 50 pipes and gizmos and gadgets all over the place. It’s visibly ridiculously complicated. You have shrunk this down and put it in a single package so you can theoretically put it in a closet. That’s what your marketing says, but the heat pump is taking the heat from the room it’s in.
So, you know, there’s this study, I’m sure you’re familiar with it, I think it’s sometimes called the Amazing Shrinking Room study, which shows that the smaller of a room a heat pump hot water heater is in, the COP, its efficiency declines the smaller the room gets for the simple reason that, like, in a tiny room, you take the heat out of the room, and then the air’s cooler, and then there’s less heat in the room to take.
And in a closet, I would imagine, you get terrible efficiency ’cause you can take all the heat out of the room very quickly, and then you’re, like, straining more and more to get to less and less heat. I’m just curious, like, what do you recommend for homeowners? Like, you don’t seriously think they should put it in a closet, right? Like, what kind of room should they put it in?
Luke Winston-Almanzar: You really do like to go deep. I’m impressed that you found that study. That’s one that’s gone around our team quite a bit, obviously. So basically, like, a heat pump works with airflow, right? Like, you’re pumping a bunch of air over a heat exchanger. The more air you have, the more heat you can pull out. That’s the simple way of explaining it.
So smaller room, less air, or you’re recycling that air more frequently. And so if you put it in a closet or a small utility room, you need makeup air somehow. So, like, pretty simple ways to do that. You can add some vents. My utility room, we added a louvered door, so that’s basically a big vented door, and it can pull from there.
And there’s gonna be a variation of efficiency. Like, the absolute best place to put a Reservoir is in an unfinished basement or a garage, right? Like a big one. If you’re in a basement, you’re almost using geothermal energy, right? ’Cause you’re just drawing it from, like, the surroundings.
But then it’s gonna vary. We don’t typically recommend our system for, like, apartment buildings with a tiny water heater closet. That’s something we’re going to want to solve for at some point in the future. The thing is, like, the large, large, large majority of homes in the country are single family, and so we think we can address a huge amount with our existing product, and we’re not stopping here, right?
David Roberts: Right. One thing about a basement, especially in some climates, is it’s quite cold and just, you know, there’s less heat in the air in a cold room. Does your efficiency decline in cold climates or in cold rooms? Like, if it’s an unfinished basement, it means it’s not heated.
Luke Winston-Almanzar: Yeah. It’s a great question. I mean, so the efficiency does go down. Like, the more heat that’s in the air, the more we can extract from the air, so it’s pretty logical that a lower temperature would be harder to pull heat out of the air, right? And then we can only go to a certain temperature. We can go down to, like, 42 degrees Fahrenheit, and then we have to use the electric resistance backups.
But one of the amazing things about a basement is its reasonably steady temperature because it’s slightly below ground, right? And that’s why it’s one of the ideal areas to do it. In the summer, it’s great, particularly, like, in basements in certain parts of the country, you might have more humidity. It actually helps dehumidify.
David Roberts: Yeah, I was gonna say, the flip side of this is in a hot, humid climate, you’re cooling the air, which is a nice bonus, and you’re in, to some extent, dehumidifying the air, which is a bonus. So, like, you get bonus in a hot room, but in a cold room you get a little loss of efficiency. That, is that fair?
Luke Winston-Almanzar: Yeah. We could save, like, a couple hundred bucks a year just on dehumidification because people, like, dehumidifiers are not efficient devices, and you just have ’em running, like, all the time. It doesn’t replace it, but it definitely helps shoulder the load. What I will say is there’s the inverse benefit, like you’re talking about the winter, but, like, in the summer, so my air conditioning at my house in Massachusetts was actually having some trouble, so my Reservoir was actually helping air condition some of my finished space. And so you have some less efficiency in the winter, but you have a big efficiency boost in the summer.
David Roberts: And this is another question I got which made me think, which is if I’m in a cold climate, which Boston is, and I’m heating my home, I’m paying to create that heat that is heating my home, and then your appliance is taking that heat out of the air to make hot water. So do you know what I mean? Like, this is financial. Like, you’re taking heat that I paid to create and making hot water with it.
Luke Winston-Almanzar: Yeah. So like all things, it depends. This is one of the biggest conversation pieces around heat pump water heater nerds and all these kinds of things. So, like, in a bunch of cases, we’ll actually have a Reservoir installed near a oil boiler, and the oil boiler has a bunch of waste heat, right? And so we’re actually just sucking off heat from that kind of thing, and it’s like, so it actually makes the whole system more efficient.
In my house, I have very high efficiency whole home heat pumps. So those can go to much, much, much, much lower temperatures. Those can go down to minus 14 Fahrenheit, but they can’t actually raise the water temperature that high. So it’s almost like you need two different heat pumps. So you bring the heat into the house with the whole home heat pump, and then you heat up the water with it. You don’t get your maximum efficiency that way, but you still are much more efficient than a generic water heater. You still have a COP well in excess of one, and actually in excess of two with the system.
A lot of people try to criticize that as, like, you have a parasitic load off the outdoor heat pumps. I don’t know if you’ve covered the concept of cascading heat pumps, where you use one heat pump to do part of the lift of temperature and a second heat pump to do the next lift of temperature. This is used in industry and all these kinds of things. You could say, like, the second one’s robbing the first one, but it’s actually part of the design, right? And so you don’t get perfect efficiency, but an amazing kind of combination is whole home heat pumps for space heating as well as a Reservoir.
David Roberts: Right. Right. But regardless, like if you’re heating the air, there’s some ding on efficiency of the water heater just because the money it takes to heat the air, you’re losing, I don’t know, some tiny fraction of that to the heat pump.
Luke Winston-Almanzar: Yeah. But I think some people kind of put this like, “This is the nail in the coffin,” as if they’re like, “Ha ha, I found like less efficiency.” The simple thing is heat pumps are less efficient in the winter than they are in the summer. So what, right? Is it still more efficient than what the alternative is? Yes.
David Roberts: All right. Let’s talk briefly about noise. The materials say this runs at about 40 or 50 decibels, which is, I guess, for comparison, roughly like a refrigerator, the hum of a refrigerator. So not obnoxious, but maybe not something you’d want like in a bedroom closet or something like that. Like is noise an issue at all?
Luke Winston-Almanzar: With heat pump water heaters broadly, yes, people complain about it all the time.
David Roberts: Yes, they’re loud. They’re loud. The traditional ones are loud. This is a common complaint.
Luke Winston-Almanzar: And they’re, like, misadvertised, but there’s different sources of noise, right? So one, if you don’t build a reliable product, you have screws that are rattling and stuff like that. If you don’t isolate the compressor well enough, you have that 1980s refrigerator sound, which you can either measure the decibels or you can just say, “That’s a really annoying noise.” With a Reservoir, we actually have basically three sound levels. So at full power … we have a very strong build that’s really reliable. We’ve focused on this a lot. We’ve focused on isolating both noise from vibrations as well as the annoying compressor noises and stuff like that, and most people will hear it and they’re like, “Oh, that’s not bad at all.”
We also do have a quiet mode you can schedule. It actually goes, like, slightly quieter with the fan. And then if you really, really, really, really — you don’t want the noise right then — you can also schedule electric resistance, or you can just schedule it to heat at a different time of day. You can say heat at night or heat in the middle of the day when I’m not even home, right?
David Roberts: Got it. Let’s talk durability, ’cause this, I think, is also one of the primary critiques of heat pump water heaters traditionally, is that these compressors wear out. You know, one of the things I heard on Bluesky is this guy had a heat pump water heater. His compressor wore out, died. The whole thing shifted to resistance heating, and the way he found out was through a much higher electricity bill at the end of the month. Like, it didn’t tell him. So how are you focused on durability specifically?
Luke Winston-Almanzar: Yeah. We have replaced a non-insignificant amount of bad generic heat pump water heaters for exactly this reason. I won’t mention any names or anything like that. There’s a couple different aspects to durability. The biggest reason a typical water heater fails is because the tank corrodes and then just starts leaking all over. When you see water leaking on your floor, it’s because the water ate through the tank.
David Roberts: Mm.
Luke Winston-Almanzar: And with a typical heat pump water heater, they use the same technology to prevent corrosion, which is called a sacrificial anode rod. You literally have this stick of magnesium that the water eats before it eats the tank. When the water’s done eating that stick of magnesium, guess what it does? It eats the tank. All the manufacturers will say, “Well, you could replace the anode rod.” The problem is, especially with a generic heat pump water heater, that anode rod is, you go through the heat pump and you have, like, a one-inch size nut on there. You need this giant, like, wrench to pull it out. And so basically nobody does this. It’s just, like, a really big pain. So still, even with heat pump water heaters, they will corrode at a normal rate, and then you can’t… It’s really hard to replace the anode rod.
We have an electric anode rod that you don’t need to replace. It uses a tiny, tiny electric current that stops corrosion. We were talking about that at the beginning of the pod. And so you don’t need to do that replacement kind of thing. That makes the tank actually probably the last thing that’s gonna fail on a Reservoir.
On the other side of things, like reliability, so first and foremost, it’s how you manufacture. Make sure you have great QA with the manufacturing partner. We source components that are manufactured in the millions. The heat pumps that we use are manufactured in huge, huge numbers. But then the final piece, and this gets back to why we’re vertically integrated with our own plumbing team, there’s no hardware company in the world that doesn’t have problems with their hardware at some point.
The question is, what do you do when something goes wrong? And so we are very proactive. Because of the sensors that we have on it, we can actually tell if you have a compressor failure. We can tell the temperature inside your compressor and if anything’s wrong with it. We can tell the temperature at the bottom of your tank. We can tell the temperature at the top of the tank. We can tell if there’s a leak in your system.
David Roberts: So you’re monitoring the performance of your water heaters from a central location. Like, you could see into them in some-
Luke Winston-Almanzar: Yeah. I mean, assuming the homeowner wants to share it with us, you don’t have to be Wi-Fi connected to use a Reservoir, but all of our units are because people love the app, and they like the over-the-air updates. But we can see energy use, we can see water use, we can see temperature variation in the system. We can see leaks.
We can actually reach out to you. We’ve done this before. We’ve reached out to customers, “Hey, you have a very high pressure reading in your plumbing system. This doesn’t have to do with the Reservoir.” There’s some towns that just have absurdly high pressure in their water mains, and so we’ve been able to advise customers, like, “You should do something about that because of this.” And this kinda gets back to the point, like we added a computer so we can add more capability, and we can see further into your plumbing system, and nobody else is doing this except in like crazy high-end homes or like industrial or commercial buildings, right?
David Roberts: So you monitor the compressor, and you can see if it goes bad, or you can see if it’s wearing out. You can see if it’s dying before it happens.
Luke Winston-Almanzar: Yeah. We can see if there’s aberrant behavior. We can see all kinds of stuff. Because we’re a new company, and we know that if customers don’t have a good experience, they will reject our product. But if you get back to it, heat pump water heaters were invented in the ’40s. The biggest reason they’re not, like, everywhere is ’cause they’re expensive, but they’re not reliable, and the, you know, and plumbers and installers might be afraid of them because they’re worried about these kinds of things, so we’re taking on that burden ourselves to start.
David Roberts: And your warranty, does your warranty cover labor and parts? Like, what’s the warranty like?
Luke Winston-Almanzar: Oh, yeah. Yeah, so we have a 10-year parts warranty and then a two-year labor warranty. You can pay more for an extended warranty as well.
David Roberts: Okay. We’re running out of time, so I’m not gonna be able to get... I had even more nerdy questions, believe it or not. Before we’re done, I wanna talk about the VPP stuff. Lots of people, for a long time, have been saying hot water heaters are a perfect application for demand response, for virtual power plants, basically, precisely because it doesn’t really matter when you heat the water, as long as the water is hot when you want it, right? So you can shift load.
If you have these computers installed and you’re monitoring these things, presumably you could enroll them in these programs. As I understand it, you have not yet, but talk about your thinking and the possibilities around that aspect of the product.
Luke Winston-Almanzar: Yeah, I’m glad you brought it up. First and foremost, our focus is on making homeowners happy, getting into homes, and all these kinds of things. Like virtual power plant doesn’t matter until you have a bigger install base-
David Roberts: Right...
Luke Winston-Almanzar: a bigger fleet to work with. I think one of the absolute biggest reasons, like everybody’s talking about water heaters. It’s like a holy grail of distributed energy resources. It’s invisible. You don’t care when we heat your water, you care when you get your shower. But there’s been so many stop starts with it because they’re not connected, and there’s a variety of different reasons they’re not connected. Often, there’s poor execution between hardware and software. Guys that have been manufacturing steel tanks for 100 years are not that great at software.
And then the other part is you have this disconnect between the OEM, the distributor, the installer, and then the homeowner themselves, and somewhere in that chain, someone doesn’t care as much about connectivity. And if your devices aren’t connected, you don’t have a virtual power plant, right? 100 percent of our systems are connected because our homeowners see value in that.
And the first step of this, so before you even get into virtual power plant, we already have homeowners using it for time of use rates arbitrage, right? So like-
David Roberts: Right. Which you have in Boston, yes or no?
Luke Winston-Almanzar: It depends on the town. The major utilities don’t yet have it, but some of the municipal light plants, so like one in Groton, their off-peak is five cents, their on-peak is 50 cents, and so you have this 10X spread. So yes, you wanna use the five cents, not the 50 cents to heat your water.
But so this is one of the things that I’m super excited about. Like if I could make, wave a magic wand, I would say, “Let’s get time of use rates everywhere, and then we’ll bring the tools,” right? And so we could do it. So you can use it as a thermal battery at the home.
But then if you do wanna talk about, like, the virtual power plant side of things, you know, once you start getting a big enough install base, we’re talking to multiple major utilities. Can’t disclose that right now. Hopefully, we’ll have some exciting stuff to announce soon. But you can offset energy use. So like, I guess I think about the grid kinda like a highway. You can either build a bunch of lanes around rush hour, or you can try to move some of that rush hour traffic to a different time of day, and it’s the same with the grid. If you can shift when a bunch of people heat their water, you don’t have to build as much grid infrastructure and things like that. I think some of the stop/starts with water heating is the connectivity piece I talked about.
David Roberts: Mm-hmm.
Luke Winston-Almanzar: But then it’s also hard to recruit people after the fact. Like, if someone who didn’t care about the connectivity, like a plumber who’s a great plumber, but wasn’t really, like, thinking about VPPs and whatnot, didn’t connect the homeowner, then the utility needs to go and get them connected, and you’ve seen people put, like, transponders on existing water heaters. You destroy the economics of the system. But if you have an install base from a company like Reservoir where we’re already connected, our customers already love it and everything, we will be able to more affordably and rapidly recruit homeowners for VPP programs.
David Roberts: Are your customers agreeing to this already, or is this just something that you could theoretically contact them about and sign them up for later?
Luke Winston-Almanzar: No. So we would contact them after the fact. We would never enroll a customer in that kind of thing without telling them. What they already can do, so our app, iwe have a couple of integrations, so you can sync it with your solar panels, you can sync it with time of use rates, you can get really fancy with Home Assistant. But when we actually get to the virtual power plant stage, we’ll talk to the homeowners.
I think one other aspect we actually have that’s very interesting, so I talked about our ability to see, like, flow of water in our systems because of the ultrasonic flow meter. We can actually spot homeowners who will be more likely to run out of hot water if you do a demand response event. And so we could say, like, “David showers at the wrong time of day, so let’s not do demand response with him. Let’s do it with these other homeowners.”
’Cause I think, like, if you look at VPPs and demand response with, like, smart thermostats, you’re changing someone’s comfort, which gets a bunch of people to opt out, like if you’re turning off the air conditioning in the middle of the summer. With a Reservoir, one, because it’s already storing energy in a tank of water, we can avoid that. But then because we have information, we can more precisely avoid that.
David Roberts: Mm. Okay. So this is theoretically in the future, maybe a small discount for users. They get a little increment of income for them that offsets the operating costs of the thing. But that’s not currently integrated in your cost comparisons. Your current cost comparisons are all just about efficiency, right?
Luke Winston-Almanzar: Yeah. It’s about efficiency and the predictive intelligence. So we will soon have demand response kind of offerings, but our goal is just to make it more affordable for the homeowner. If with demand response, we can make it even more competitive against gas, the sooner we can kill gas.
David Roberts: Right. Here’s a question. A month ago, a company called A. O. Smith shipped a CO2 split heat pump water heater with Panasonic. It works down to minus 25 degrees. It heats quickly, has no electric resistance elements at all, and is completely silent indoors, and plugs into a standard outlet because it has the compressor outside. It has a outside unit where, that does the noise. I’m curious, like, A, why not put the compressor outside? Did you think about that? A split system. Why not a split system?
And then B, in competitiveness terms, what is your sort of what they call a moat? You know what I mean? Like, what protects you from competitive pressures from these bigger companies that have more money to dump on these things that are rapidly improving their products?
Luke Winston-Almanzar: So, I mean, as far as my read, we’ve looked at that A. O. Smith one. I think it’s a CO2 heat pump, which is similar to the SANCO2 system. As far as I can tell, they haven’t published a price on it. I do know that the, like SANCO2 system is very expensive, and so that’s where you start getting into it. So just the monoblock itself ends up being very expensive because with CO2 you have higher pressures in the system, and so you need more metal and-
David Roberts: Right. This is using CO2 as the refrigerant if people aren’t following along.
Luke Winston-Almanzar: Yeah. Yeah, using CO2 refrigerant can be very exciting, and then you realize it’s not as easy as you’d think it is. So one, you raise the cost, but then you also raise the cost because for a water heater, you’re running these lines, so you have to have a pad for the compressor outside. Then you have to have, either have refrigerant or you actually have to have water lines going from outside the house into the house, into the tank and everything.
And so maybe you make up for some of it with plugging into a normal outlet, but then you have more install costs, right? And so that’s where you start getting into this thing like how many homeowners are gonna let you drill through the walls and do all these kinds of things, and what’s the final cost?
I would find it kinda hard to believe that their system is gonna be able to be as competitive on cost basis as us. Like what we’ve seen in the market with systems like the SANCO2 system, you’re talking in excess of $10,000 for a system. And so yes, you have those benefits, but how much are people gonna pay for those? And you’re effectively doing a lot of the work for space heating without actually getting space heating, right?
David Roberts: Right.
Luke Winston-Almanzar: And so sure, you can have some features that are… do get rid of some of the issues that you might see with an integrated system, but I don’t see how you’re gonna be as efficient or as affordable for a lot of the houses in the country.
David Roberts: Got it. Got it. Okay. A big question here is about policy, specifically policy headwinds. The tax credit, there was in the IRA a big tax credit for these more efficient systems. That died. That was killed dead at the end of last year. So that’s one competitive piece that you lost. And then second, and perhaps more importantly, the Department of Energy was gonna put out a new efficiency standard for water heaters in 2029, which is supposed to tighten efficiency.
And the idea, I think, in the industry, and this is, I actually heard this from the sort of heat pump water heater trade group which exists, saying, you know, right now we’re a tiny fraction of water heaters, but once these new standards come in place, that’s expected to boost heat pump water heaters up to like 50 percent of new units because of these efficiency standards. Trump is trying to kill those too. He’s trying to rescind those new standards before they’re ever implemented.
So I guess my question to you is, with the loss of the tax credit and theoretically without these new standards, do you not feel like you are slogging uphill here a little bit, condemned to some extent to be a niche forever, or do you think you can be competitive without them?
Luke Winston-Almanzar: Gee, David, you really know how to bring down a room.
David Roberts: I saved it to the end. Maybe nobody’s listening anymore. They can… It’s just between us.
Luke Winston-Almanzar: Yeah, exactly. No, I mean, so we chose hot water for a variety of reasons. I don’t care what the incentives are and whatnot, people are not gonna go without hot water. You know, they might go without a lithium ion battery. They might go without solar panels and stuff like that, but you are going to have a water heater. It’s actually required by law. So that’s one, and I wanted to build a business that can exist without incentives and things like that.
Am I sad that the IRA tax credits are gone? Yes. It’s very helpful, and who knows where the efficiency standard’s gonna go. My philosophy is we need better products that homeowners just want, as opposed to saying, like, “Everybody must drive a Toyota Prius,” right? I don’t think everybody wants to drive a Toyota Prius. We want a more efficient product that’s just a better product, and that’s how we’ll compete. We’re insanely competitive against electric resistance water heaters just ’cause it costs so much, against oil, against propane, a bunch of other things like that.
What we have seen is the incentives in Massachusetts were lower when the IRA existed. Incentives have gone up. They’ve gone up in Maine. They’ve gone up in New England. They’ve actually gone up in some regions.
David Roberts: Yeah. I mean, and blue states might, to some extent, compensate with their own incentives, some states.
Luke Winston-Almanzar: Yeah. And so it would be helpful to have these incentives, but at the end of the day, if you’re building a business around incentives, that’s not a business I really wanna be in. I’ll take it as, like, give us some tailwinds and whatnot, and there’s, like you said, in some of the blue states there is. But we will innovate, and we will advance to the point where we wanna drive down costs regardless of incentives, and that’s why we’re doing the install piece as well, right?
David Roberts: Right. So the real… Where that really hurts you is in your competition with natural gas water heaters. But insofar as there’s a move toward electrification more generally, which is a larger phenomenon than just these specific efficiency standards, you think that’s gonna help you because you’re already competitive with electric resistance water heaters, basically.
Luke Winston-Almanzar: And, you know, you bring up blue states with more incentives. It’s actually the blue states that have more gas, and the red states, the further you go south, have more electric, right? So you go to Florida, it’s almost all electric.
David Roberts: Yeah. That’s funny. It’s a irony. So, all right. Well, let’s bring the room back up to finish with then. Let’s talk about-
Luke Winston-Almanzar: Yeah, let’s do a positive note.
David Roberts: You’re already moving heat around the house. I know there are some other companies that are trying to sort of combine water heating and space heating in various ways. Harvest, I think we had on the pod a couple of years ago. I wonder if you’ve thought about that at all, or if you’ve thought about a version for multifamily buildings, or I guess just sort of like generically, like what’s... Obviously, you’re trying to get this nailed down and build a business around this, but like, what’s next on the horizon if you’re able to get a stable business going?
Luke Winston-Almanzar: Yeah. We wanna manage the majority of thermal energy in a home, and that includes space heating and cooling, but you gotta start somewhere. And I’ll tell you, it’s morning or afternoon to install a water heater. It’s like open heart surgery to do whole home. And a lot of people do it all the time. That’s a lot to bite off for a brand new company. What’s really interesting, though, is you install a Reservoir in a home, and we’ve already got a relationship, and actually some of the trades are pretty similar, some of the technology is pretty similar to getting to that kind of thing.
And so my question always is, how do we get to 120 million homes as fast as possible? The reason 120 million homes is because that’s how many homes are in the United States, and water heating is the fastest way to get started. But we will absolutely get into more products and everything like, you know, we could talk about the thermal battery side of a water heater.
Imagine if we had 70 percent of home energy. When residential energy is 20 percent of US energy, what if we had 70 percent of that in tanks of water that you can balance with the grid? But we wanna move fast. We don’t wanna just be a tiny regional company, and so we’re doing it in an efficient way.
David Roberts: For bigger buildings, multifamily buildings, is there a version of this product for bigger buildings? How does it scale up in terms of building size?
Luke Winston-Almanzar: There definitely is. Most people don’t realize, like the large, large, large, large majority of homes in the United States are single family. I think something like 90 percent of homes are single family. And so going after that is actually going after the bulk. That’s just like why are we focusing there to a certain degree.
Then there’s multifamilies. You’d be surprised how many multifamilies have apartments with individual water heaters throughout them. We’ve talked with a bunch of operators … like you’d think, ’cause it is more efficient to have a really big system that services everyone … it’s crazy how you don’t actually have that. And so if you have an individual water heater, our system is the one, or like a version of it, a future version of it will be great for apartments.
And then you get into the systems where you talk about a bigger heat pump and a bigger tank of water. I don’t think that’s an underserved piece of the market, though. I think the underserved part of the market is homes, smaller homes.
David Roberts: And so right now you’re in Massachusetts, statewide now, Massachusetts, or just Boston?
Luke Winston-Almanzar: So we’re in Massachusetts, we’re in Rhode Island, we’re in Maine, we’re in New Hampshire. We’ll have more announcements to come.
David Roberts: The idea is to expand. Optimistically, how soon are you nationwide?
Luke Winston-Almanzar: Two to three years. And by nationwide, I mean we’ll be in, call it 20 to 30 metros.
David Roberts: All right. Well, we’ll end there. That’s an optimistic vision. Thank you for this. I love to nerd out. This was fun to nerd out on. This is a product I’ve sort of had in the corner of my eye for a long, long time, been wanting to do a deep dive on. So I was happy to nerd out on this, so.
Luke Winston-Almanzar: Yeah, this was awesome. You went a little deeper in some places than I expected you to, so.
David Roberts: All right. Well, thanks for coming on and walking us through it.
Luke Winston-Almanzar: Yeah. Happy to be here.
David Roberts: All right.
