A large part of German residential property stock is at risk of becoming stranded assets in the coming years. Paul Tech, a heating supplier and building automation specialist founded in 2017, offers an interesting way, both ecologically and economically, to prevent this from happening.

„We optimise buildings so that multi-family homes can be heated in a CO2-neutral way without investing in insulation or underfloor heating – this spares residents the enormous rent increases that would be incurred in the event of complex and expensive refurbishments," says Sascha Müller, founder and CEO of Paul Tech, in a conversation with Börsen-Zeitung. "This means that our heat supply price is cost-neutral compared to the previous oil or gas central heating system, and cheaper than local district heating.“

According to Müller, Paul Tech's systems can generate three kilowatt hours of heat from one kilowatt hour of electricity using AI control. This corresponds to a coefficient of performance (COP) of 3.0, which is significantly more efficient than generating heat with oil or gas. „This enables our customers to achieve efficiency class A for their buildings.“

This is possible because Paul Tech's components are AI-based and not static. „We have collected seven years of data from 160,000 residential units," says Müller. "This allows us to categorise buildings into clusters or patterns. We know the exact energy consumption for many cities, locations and building types.“

Instead of a costly reduction in energy consumption, CO2-neutral heat production is the more cost-effective option. After all, you have to invest between 600 and 1,200 euros per square metre for insulation and underfloor heating. The purchase prices for larger property portfolios are currently between 1,000 and 1,400 euros per square metre. „This means that rents would have to roughly double if the usual energy-saving measures were implemented – this is not possible in the western federal states with an average rent per square metre of 7.40 euros, and in the east with an average of 6 euros", says Müller.

In order to achieve CO2 neutrality in heat generation, the state would have to provide high subsidies. „The result would also be CO2 neutrality", he says. "But at a much higher price. Our costs are between 90 and 95 euros per square metre.“

In residential complexes managed by Paul Tech, the installed technology does not increase rents. „We take the amount that the tenant would pay for district heating or gas via the ancillary costs. We use this cash flow to refinance our investments.“ Paul Tech concludes multi-year contracts (contracting agreements) with the landlord. „During this time, we look after the heating systems and their optimisation, and supply green heat.“

Paul Tech's target customers are primarily medium-sized, capital market-orientated companies in the housing industry. „We address 11 million residential units with 6 or more parties in German B, C and D cities and locations. There is room for a heat pump there.“

By the end of 2025, the company wants to have already upgraded 20,000 residential units in terms of heat generation so that CO2 consumption is net zero. However, based on the order intake, there is much more to come. „We have orders for 100,000 residential units announced for the next 24 months," says Müller. "That's an order volume of over 1.5 billion euros over the next 10 years, which we have already concluded with preliminary contracts (letters of intent) or are about to conclude.“

„We are currently financing the construction phase with the help of a family office and a medium-sized German insurance company," he explains. "For the project term after installation, we are currently structuring long-term financing with a large German asset manager in the low three-digit million range.“ The insurer in question is HUK-Coburg, according to market reports. According to Müller, he still holds 72% of the shares in Paul Tech AG. At the end of 2023, Hannover Finanz has invested 40 million euros.

The Paul Tech founder opposes the current model for state subsidies to increase energy efficiency. „Subsidies only shift competitiveness. We should stop subsidising and use loans to drive the expansion of green energy", says Müller, who envisages KfW loans that can be repaid in 8 or 9 years. „They don't have to be subsidised.“